The Wrong Way to Invest in Real Estate
While most people may consider buying a home simply for the sake of having a personal residence of their own, real estate is a viable alternative to those difficult to understand and costly investment funds and retirement accounts. As with any financial investment, there are things to do and things not to do when making an investment in the real estate market.
Any investment should be examined closely before any money is actually spent. No financial investment comes with a one hundred percent guarantee of a “return of investment” or ROI. If somebody is promising you a double-digit return on your real estate investment, they are probably lying to you.
While real estate sales persons will usually have good information about the homes, the surrounding neighborhoods and other general information, care should be taken if they are offering you financial advice. While this is not a common practice and is not reflective of all sales people, some people are the proverbial salespeople. Listen closely to what they say. It could very well be that they have sound analysis and are quite correct in their conclusions. However, it is never a good idea to trust the words of one single individual with any financial investment, much less any major investment such as one in real estate.
Knowing what the costs will be on an investment property is something that is often overlooked. Lately, purchasing condominiums as an answer to the dwindling rental market has become a popular real estate investment in many US cities. The assumption upon investment was that the rental market would allow for easily renting the property and creating a self-sustaining investment. Such factors as regular and routine home maintenance, association fees, homeowners insurance and other expensive fees associated with homeownership are not taken into consideration. The end result is an expensive parasite that will slowly deplete the financial resources of the real estate investor.
A very large number of people are commonly approached with offers of full and complete mortgage financing which will even cover pre-purchase expenses such as property appraisals, escrow funds and other pre-investment expenses which may initially seem like a viable investment alternative to the real estate broker. These easy to obtain loans and mortgages are frequently a poor investment however. Most of them are established on variable rate mortgage payment plans. This means that as interest rates fluctuate, so will the house payments required of the real estate investor.
These loans also frequently artificially inflate the value of the home resulting in the real estate investor being “upside down” in their mortgage payments for upwards of twenty years into a thirty-year loan. Not only will this result in a substantial financial loss to the real estate investor, but it will also frequently leave the homeowner with no other choice but to file bankruptcy or allow a foreclosure on the property as the only way out of the real estate investment. The end result of a poorly informed decision in real estate investments will only be to the detriment of the buyer and not help anyone to retire.