Investing comes with risks and rewards. The same applies when it comes to real estate. This guide will help you understand the specifics of this kind of investing.
Needless to say, it’s important to do your due diligence. It would be a mistake to leap before you look. Otherwise, you might just hit the ground (and not in a running sort of way).
If you want to link up with a real estate agent, view Teifke Real Estate at their website. Let’s take a look now at a deeper explanation of real estate investing and the risks and rewards linked to it.
Due diligence is important
The key here is less risk and more reward. That’s what every real estate investor wants. Due diligence is perhaps your best line of defense against making a bad investment.
You may be risking a large amount of money that you may never see again. It’s gains or losses. The last thing you want to deal with is loss.
If there is an investment opportunity where the bad outweighs the good, the reward will be little to nothing. For instance, you’ll want to look at the property and see where it’s located. If it’s near a busy street or near an airport, the smart thing to do is pass on it.
For one, no family wants to be living in a place where it can be a deathtrap the second they step outside. Furthermore, they want peace and quiet. A home that is near a busy street or an airport doesn’t offer that.
You’ll also want to get a good amount of data on the interested properties. You’ll want to be certain that they are in a desirable neighborhood. You also want to make sure that they are in an area where they are close to highly rated schools or have a low crime rate.
There is so much data that you need to look through in order to make a decision. If the property is close to mass transit, that’s a plus. But you have to look beyond that.
It can be close to a bus stop, however its one glaring issue is that it’s on a busy street. Now, if the property is on a neighborhood street and is about a two minute walk from a bus stop, that’s even better. See why you have to go a little deeper with your due diligence?
Even though you see some positives, there may be some major negatives such as high crime, bad layout location that may destroy any chance of acquisition. For that reason, it will be very difficult to get a tenant or much less retain one. Knowing the lay of the land (in this case your local area) will be key.
You can get a map of the local area and mark down desired areas of interest. Then you can do further research. You can find out about the average property values, the types of property that are in the area, and so on.
Finding the right tenants is another risk/reward element
The risk and reward does not end with property acquisition. The next phase is finding the right tenants. The process can be a challenge for one person.
For those with multiple properties, they will enlist the services of a property manager. They can look through the applications and take a look at the information of prospective tenants. It may be a risk to accept a tenant who may have a shaky rental history because of missed rent payments.
The reward is finding the right tenant who is responsible, respectful of the rules, and pays on time every time. This is why you’ll be able to use references to see if the prospective tenant will be a good person to deal with. You may also find out from other past landlords about their rental history.
You’ll have bad tenants that will skip out on rent, damage the property, or do something that may cost you more money than it should. You get little to no reward out of the deal (for obvious reasons). If you don’t want to risk taking on a tenant for one reason or another, don’t be afraid to say no.
However, it is important to follow any laws or regulations regarding discrimination and housing. It’s your decision to deny someone a place on your property. But you want to make sure it is for the right reasons.
It can be due to a rental history where lack of payment and evictions have been constant. It can be due to frequent damage to property. Be sure to look out for any red flags as you screen each applicant.
It’s also important to note that your property meets your ideal tenants needs. For example, they might find your property appealing because it’s a quick commute to work and close to a school for their children. Now, they can decide whether or not it’s the best place because they can afford the rent.
When you search for a property, think of your ideal tenant. What would they want in a place to live? Is it low crime and a short commute?
Or do they need a big enough yard for their kids to play in while it’s situated five minutes away from a school they’ll attend.
Final Thoughts
Risks and rewards in real estate investing do exist. Whether it’s acquiring the right property or finding the right tenant, you’ll want to be aware of them. If you want to reduce the amount of risk, it comes down to due diligence.
The deeper you dig, the more information you’ll have to make a decision. Sometimes, your due diligence will tell you not to pursue that property opportunity. It can also mean saying ‘no’ to a tenant looking for a place.
Nevertheless, a successful investor will be rewarded with good paying tenants. When their time comes to sell the property, they’ll be able to do it at a time when the value is much higher than when they bought it.
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