Investors think of investment properties as providing financial stability for a lifetime. They can also be a great source of passive income.
That said, they can be a significant financial burden if not purchased carefully. To make a sound decision while investing in properties, there are some things you need to keep in mind.
These can include the local lifestyle, avoiding major real-estate markets, the location of the property, the property type, your financial plan, and DIY projects. These things can help you decide about a successful real estate investment.
That is why we will discover the six common mistakes you should avoid while investing in a property.
What Should You Avoid While Buying an Investment Property? 6 Carefully Chosen Facts
Thousands of facts can affect the decision to buy an investment property. Remember, it is your money and not a tiny investment. Among many factors, the following six are essential when purchasing an investment property.
1. The Local Lifestyle
The phrase “local lifestyle” describes the traditions, practices, and cultures distinctive to a specific group or area. Real estate investment can affect property value, rental revenue, safety, security, amenities, etc. It is an important aspect that significantly contributes to the allure of an investment property.
The purpose of living in a particular region influences the lifestyle of the people there. For instance, people living in Washington near shopping malls, museums, and other tourist attractions have a more specific lifestyle than people in other areas. They may plan on staying there temporarily.
In contrast, houses in Northern Virginia and Maryland close to parks, schools, and stores appeal more to buyers or renters who wish to live there long-term or permanently. However, lifestyles can be different for people in other states. Therefore, it is crucial to have a strong knowledge of the local lifestyles of potential buyers or renters before investing in a property.
2. Avoid Major Real-Estate Markets
The real estate market often remains competitive in major American cities like Raleigh, Nashville, Austin, Tampa, and so forth. Property investment in a competitive market can result in significant losses without comprehensive research. Because real estate prices are higher in a competitive real estate market, the magnitude of your losses will be greater.
For many investors, the competition is intense in major real-estate markets. These markets are more susceptible to fluctuations and economic downturns. Additionally, you need to consider the current market trends, rental rates, and values for different types of properties in the local market where you want to invest.
3. Overlooking Condo Market
Many tend to focus solely on single-family homes when investing in real estate. While these properties can be great investments, there are other options out there that should be noticed. For example, condos on Hilton Head Island offer a unique opportunity for investors.
One of the most significant advantages of investing in a Hilton Head Island condo is the potential for rental income. This island is a popular vacation destination with beautiful beaches and year-round attractions. As an investor, you can take advantage of this demand by purchasing a condo and renting it out when you’re not using it.
Here you can find condominiums for sale in Hilton Head.
4. The Location of the Property
The location closely relates to the previous two factors: the local lifestyle and the real estate market. The lifestyle and the real estate market may change based on the location. To put it briefly, the location affects the real estate market.
Based on the location, your potential buyer may or may not buy the property. For instance, commuters may prefer properties near public transportation or major highways.
On the other hand, students or young professionals tend to look for properties near universities or colleges. Therefore, researching the area thoroughly is essential before purchasing a property to confirm the needs of potential buyers or renters.
5. Lack of Solid Financial Plan
You need a financial plan that works to keep up with the competitive real estate market, especially in areas like Maryland or Virginia. You need to execute your plan after knowing some details. According to Zillow, the average home value in Northern Virginia is around $360,873, a 4.6% increase over the previous year.
Additionally, the median rent is $2,200 per month. Such information may improve your financial strategy.
Whether through resale or rent, a clear plan is necessary to generate income from the property. Don’t forget about the potential expenses, such as property taxes, maintenance costs, and insurance. Your financial plan may change after considering them. So, you should consider every nitty-gritty while developing your financial plan.
6. Not Considering Potential DIY Projects
Sometimes, investors don’t look after their properties after purchasing them, which can decrease the home’s value or rent. In addition to maintaining their homes regularly, they should incorporate DIY projects. It can be a great way to increase the value of an investment property.
You should also consider potential costs and time commitments before implementing DIY projects. For example, adding a patio or deck can increase the property value in Maryland and its value. However, it can be costly and time-consuming. Hence, you should make a clear strategy after considering everything and calculating the possible ROI for any DIY projects.
Investment property can only be a foundation of wealth when invested carefully. On the contrary, it can be costly due to poor diligence and common mistakes. Consider the six factors discussed above to make your investment property profitable and worthwhile.