Just How Safe Is Investing In Real Estate?

Sure, the real estate market is hot. However, is investing in real estate the safest route in today’s world? It can be, but only if you really know what you are doing. Otherwise, it might be better to leave investment properties to the pros.

Any house, new or old, will need repairs from time to time. A smart investor will have a home thoroughly inspected before purchasing it, but even the pros cannot predict the future. Unusual storms can cause irreparable damage that your homeowner’s insurance may not cover. A strong thunderstorm can lead to flooding water in your basement (covered only if you have expensive flood insurance), a well might run dry in a drought, strong winds might blow a tree branch or entire tree onto your roof or through a window, and the list goes on. You will need good insurance coverage and the means to cover immediately repairs.

The rental market fluctuates greatly. In a college town, housing may be impossible to find during the school year, but then go completely dry during the summer. The last thing you need is to purchase an investment property and start paying the heavy mortgage on that property, only to struggle finding a renter. Without a renter, your investment property sits empty, and you still have to pay your mortgage and taxes.

Many do not realize exactly what responsibilities fall on the property owners’ shoulders. Every state and city has laws on how a landlord can act. In Vermont, for instance, even if your renter has not paid his or her rent in six months, you cannot evict them during the winter months (October to April usually.) It is illegal to put someone out on the streets during the cold winter months. Other areas require a landlord to be licensed to rent their properties to others.

Even beyond the laws and restrictions, property owners must pay their property and school taxes (in some areas these taxes have increased by 300% in a span of less than ten years), utilities (even if the renter is using far more energy or water than you feel is reasonable), maintenance, lawn care, garbage removal, and other necessary bills. If the rent is not high enough to cover these expenses, you will find yourself slipping into bankruptcy.

Finally, one of the biggest mistakes is purchasing investment properties in an area that is overloaded with rental units and buildings. If there are too many buildings, you have to compete by lowering your rent. If you go too low, you will wind up short when it comes time to pay the bills.