The Unexpected Risks Of Real Estate Investments

By Claire Manassero

The US housing market is worth $33.6 trillion. It is a growing market, despite financial uncertainty. With approximately two-thirds of the population owning their homes, there is still plenty of potential for investors who want to purchase a second home for rental purposes. 

When it comes to maximizing your profits as a landlord, you need to understand the value of:
  • Location - For instance, rentals in busy creative cities such as San Francisco and NYC are more expensive than in other cities.
  • Furnishing - Furnished or partially furnished apartments and houses don’t stay empty long on the rental market.
  • Commodities - Proximity to stores, business offices, and public transports makes rentals more valuable.
However, if you’re going to create a reliable source of income as a landlord, you need to be aware of the risks and obstacles that could affect your return.

Risks Of Real Estate Investments

Your mortgage makes it unprofitable

When you buy a second property, you need to approach your mortgage choice carefully. Indeed, the mortgage for a second home isn’t exactly the same as you would get for your primary property. Firstly, it’s essential to understand that, if you are still paying your mortgage for your primary home, you need to make sure your finances will allow you to obtain a good deal on a second mortgage. It pays off to get your finances in order and improve your credit score ahead of applying for a second mortgage. Additionally, you may want to calculate how much you can afford to pay for your second mortgage. Your calculations will need to include your current payments and expenses, as well as how much you can expect as monthly rent income.

You don’t inspect the property before purchase

Half of the homeowners purchase a property they have seen online without visiting it. What are the risks of not visiting a property if you don’t intend to live in it? They are considerable, as your tenants are in a position to start legal actions if the property has problems. It is a good idea to ask for a full property inspection and audit report. The report will highlight the necessary improvements and repairs for health and safety. In the late 1970s, asbestos was banned in wallboard and gas fireplace in the US. However, a lot of properties built before 1978, and some built before the most recent bans, contain asbestos. As a landlord, it’s something you want to know and sort out before one of your tenants reach out to mesothelioma lawyers for a lawsuit. The use of lead in old paint and plumbing will also require careful attention during an audit for the same reasons.

Your home improvements don’t add value

It’s hard to put a home on the market without making improvements. However, not all improvement projects will add value to the property. If you intend to sell your second home in the future, you want to think twice about your choice of upgrades. Plumbing replacement, for instance, is necessary to fix damages or remove hazardous components and structures. However, you are unlikely to recoup your costs when you sell.

Can landlords still enjoy a sturdy source of income by renting out their properties? The answer is yes. However, if you want to protect your profit, you need to make sure you’re not cutting corners. Applying for a second mortgage before getting your finances under order could be devastating. Similarly, saving time by buying without visiting or agreeing to all improvement suggestions without consideration could have dramatic costs.

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Finance Magazine: The Unexpected Risks Of Real Estate Investments
The Unexpected Risks Of Real Estate Investments
If you are going to create a reliable source of income as a homeowner, you need to be aware of the risks that may affect your real estate investment.
Finance Magazine
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