21 Aug 2019

Cautionary tales of real-estate investments

Real-estate investments are popular because of its high-potential return. While many people jump at the opportunity to invest in real-estate, the simplicity at the start doesn’t always capture the risk in the long run. Real-estate investments involve many factors that many people may not have thought of.

Relying on information online
We live in the age where the internet seemingly has everything. Many new investors are under the false pretense that the internet has enough information to set them up to become successful investors. In fact, the best source of information in real-estate is to physically visit the area and collect information, survey people in the area who have no stakes in the investment that you are about to make. Seeking information about the future of the location you are about to invest in, such as infrastructure or department store project plans. Information from various sources can greatly contribute to verifying the news and information as well as to confirm the direction of your decision.


Bank loans can be tricky
Nowadays, it is possible to borrow money from a bank to invest, especially today when loans are so easy to come by. If you have a bank account with regular traffic, all you’d have to do is prepare some documents. Even if you weren’t an employee, you could still acquire a loan. Many investors are choosing to invest with a bank financing the property 100%.

The caution about investing with 100%-backed by a bank loan is higher monthly interest rates. This makes your rent even less attractive, because you’ll have to include interest rates into the rent. The easier the loan to acquire, the more careful you should be about interest rates.  


Hidden transaction fees
Real-estate investments are a little more special than investments in other assets, because there are many expenses involved in the transactions including preemption fee, contract fee, and if a bank loan is required, appraisal fee and transfer fee at 2% of appraisal value. Most of the time, this fee is split between the seller and the buyer depending on the agreement. 

Another hidden fee to be cautious about when investing in condominiums is that sellers may have not paid the maintenance or common fee. As an investor, we may end up being responsible for that fee, which becomes cost.


Finding tenants isn’t as easy as you think
The dream of real-estate investors is that, once we purchase the property, there would be a tenant with luggage ready to move in at the doorstep. In reality, finding tenants may not be as easy. Many times enhancements have to be made or tenants may push down investment prices due to competition. This is why physically visiting your property is important to prevent this type of risk.


Maintenance may be higher than you think
Another important investment cost for new investors to be cautious about is maintenance cost. Naturally, properties depreciate over time, especially when renting out, because tenants will never car for your property as much as you would as the owner. Once the current tenant leaves, you’ll have to invest in maintenance to make the property attractive for the next tenant or else you could have a very hard time finding your next tenant. If competition in the area is intense, your chances of finding a tenant may be slim to none if your property is in worse shape.


So all in all, it is important to have all the information you need to become a successful real-estate investor. Learn about your location and your property as much as possible. Compare and evaluate details before making your investments because these types of investments are probably the riskiest of them all.