Hurdles To Brace For When Buying Investment Properties

Posted on: February 13, 2011

Categories: Buy, Investors, Other Articles, Property Management, Things To Consider

Author: lbuen

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Image by Matthew Boyle via Flickr

The Lure of Buying Investment Properties

Fed up with the mercurial temperament of the stock market? Multitudes of people have instead been drawn to buying investment properties that can provide cash flow for years to come in the form of rental income. The many landlords enjoying semi-retirement funded by their steady streams of income from their rental properties indicate the bankable rewards of investing in the real estate. However, it also has its share of hurdles that any investor must be aware of and brace for.

The Setbacks of Buying Investment Properties

Vacancies and Funding Mortgage Payments From Somewhere Else

The promised steady stream of income from your rental property may not be as steady as you may have hoped for because there will be times when you will experience vacancies. Buying investment properties entails regularly paying the mortgage even when rental income dries up. During times of vacancies, mortgage payments will eat away at your cash flow, hence, you may need to finance these payments from other sources of income. Vacancies may occur when maintenance work needs to be done or when a tenant goes and you cannot immediately find a replacement. There are also areas where an oversupply of rental properties is giving landlords a hard time renting out. So before buying investment properties, make sure that these are not located in such areas. A Tenant’s Notice of Intention to Vacate attached to the Lease Agreement when you admit in a tenant is a way to avoid this hurdle.

Problem Tenants, Every Landlord’s Incubus

Okay, your rental property may be fully occupied, but who are the occupants? Beware of problem tenants who can wreak havoc to your property or to your cash flow as they may refuse to pay. A thorough background check, by calling previous and current landlords, or even by visiting the current place they are renting, before admitting them as tenants is a helpful way to steer clear of them. Also ask for security deposit, an amount which you can keep and use to fund the repair in case the angelic tenant grows horns and destroys your property.

Maintenance Costs That May Cost Too Much

When buying investment properties, consider the age of the building and the maintenance costs that goes along with it. The selling prices of older buildings may make you salivate and gung-ho to acquire, but always remember that the cost of its upkeep will whittle away at your cash flow.

Taxes and Other Costs

You have to pay for capital gains tax on the appreciation of your property and you are expected to pay for it once you sell it. Also consider in your finances the other costs incurred when selling or buying investment properties.

Less Liquid Than Stocks

When you grow tired of playing the landlord role and would want to sell your property, this may not be as easy to liquidate as compared to stocks which you can conveniently sell the next day. It may take many months for you to find a buyer if you are not inclined to selling it below its market value.

When buying investment properties, you do not just buy the prospect of reaping in substantial cash flow, but the possible problems that may go with real estate investing, as well. By anticipating them and proactively preparing for ways to mitigate them will help put your steady stream of income on an even keel.

 Hurdles To Brace For When Buying Investment Properties
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