Buying a property you don’t intend to live in is one of the first real steps toward becoming a property investor, and there’s a genuine thrill to closing on a place you expect to make you money. But you know the old saying about investments: their value can go down as well as up, and there’s no such thing as a sure thing. Once you’ve signed the contracts, the work isn’t over. In reality, it has barely started.
Table of Contents
- Knowing When to Sell and When to Rent Out
- Low Demand and Vacant Property
- Meeting Your Legal Requirements
Judging the market and knowing when to invest and when to divest are skills every property investor needs to develop. Below we look at some of the pitfalls that can catch you off guard when you buy for investment purposes. Knowing how to spot them and how to navigate past them is going to be critical if you want to make a genuine success of your real estate portfolio.
Knowing When to Sell and When to Rent Out
The most fundamental thing about an investment property is that it makes you money. That’s what an investment is. There are two primary ways a piece of real estate can do that: you can sell it for a profit, or you can rent it out so your loan payments are covered with something left over. What matters here is knowing which approach fits your situation at any given moment.
Renting is generally a smart move when you expect the property to appreciate. Instead of selling right away, you collect income while waiting for the place to reach a price worth selling at. It’s almost never wise to sell into a struggling market unless you find a buyer willing to pay above market value for a high-end property. Conversely, a rising market may be the right moment to sell if you spot apartments for sale that could generate a bigger return. The investors who build real wealth buy and sell at the right time, not just at a convenient one.
Low Demand and Vacant Property
Nothing rattles a real estate investor quite like a property sitting unused. Not sold, not rented, not generating a cent. If demand is soft in your market, a property can sit empty for months, and every one of those months is a gap in your income. Before you buy, look hard at what the local data actually says. If the area consistently attracts renters, you can be reasonably confident that the right price and some solid promotion will fill a vacancy sooner rather than later. If it doesn’t draw renters, only buy if you’re confident you can sell at a profit. Wishful thinking is an expensive habit in this business.
Meeting Your Legal Requirements
There are those who will call this the bare minimum. They’re right, and yet plenty of investors still manage to skip it.
When you buy for investment purposes, protecting the value of what you’ve bought is the priority. That value can be eroded by any number of things: a missed detail on a safety inspection, an undisclosed nearby facility that processes hazardous materials, or even falling foul of regulations governing what type of mortgage you’re required to carry if you plan to rent the place out. All of these carry legal and financial consequences. Consulting a real estate attorney and making sure every legal detail is resolved before you finalize anything isn’t thrilling work, but doing it upfront makes every step afterward considerably cleaner.
