Mistakes housing investors make
With traditional investments delivering low returns, some are considering buying rental housing. However, potential investors should do their homework and avoid the following common mistakes.
Here are the SIX mistakes housing investors make. The traditional rent, investors would like to see is 1% of the sales price (an annual gross return of 12%), but after expenses it is more like 5% to 6% . Nothing wrong with that and certainly more than some other investment options.
- Mistake number 1 : confusing a cheap deal for a good deal.
It is true that you can buy some properties in certain areas at a ridiculously low price (generally in overbuilt deserted areas) – it does not mean that you can rent them out. In deserted subdivisions homes not attractive to buyers can also be not attractive to renters. But Palm Springs as a resort area offers properties (condos or free standing homes) generally in gated communities well kept and attractive.
- Mistake number 2 : overlooking key costs such as repairs and closing costs – as well as resale costs when time comes. But in Palm Springs , many of the homes are second homes and generally sold turnkey furnished ready to go.
- Mistake number 3: Forgetting that “time is money” – calculate the potential time of occupancy. But in Palm Springs, most of the “investment properties” rent only for the season (December thru end of April) at a price which is 2 to 3 times the price of a long term rental for the same size property. This would be equivalent to the return that long term annual rental would bring. And there are never enough of those rentals available
- Mistake number 4: assuming that you will sit back and collect money : tenants also lose their jobs and it is hard to get them out of the property. But in Palm Springs, seasonal renters pay you in advance for the whole length of their stay and you never have to deal with late payments or no payments.
- Mistake number 5 : underestimate repairs costs : advice : set aside 6 months of rent to cover repairs. In Palm Springs too this would have to be taken into account though your typical tenants are couples with no children, retirees coming to enjoy their winter here, eating out most of the time. Also you can always offer your cleaning team to maintain the home every two weaks and make it part of the conditions.
- Mistake number 6 : assuming that owning a rental is the same as owning a home: tenants are more demanding than owners and you might want to contract a management company But with seasonal rentals- a good concierge and cleaning company – your own advertising on www.VRBO’s.com is another option for management company.
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