The five costly mistakes that a real estate investor can make is not:
- protecting the assets in his or her portofolio
- researching the town or community the investor is buying in
- knowing the fair market rents
- knowing what type of property is most profitable for the investor
- knowing the cost of rehabing and maintaining a property
Protecting your assets is your number one priority because the real estate market is not yielding many opportunities for flips. A flip is when an investor purchases a property and rehab it and then sells it to another buyer. Sometimes this happens before the property has been owned by the investor for six months. The longevidity of ownership is important because FHA requires that the owner owns the property for at least six months before he or she can sell it to a FHA buyer.
The investor, on the other hand, desires to sell a property as quickly as possible to prevent paying holding cost. Holding cost can be mortgage, maintenance, taxes, insurance, etc.
In today's market, the investor is able to buy at a low amoun, buy may not be able to sell for the desired profit margin that have been enjoyed by other investors in the recent past. Therefore, it is important to protect your asset because the investor will be holding the property until such time that he or she can sell it for the desire profit margin. The investor protects his or her asset with insurance. It is also recommended that you form a business entity to protect your personal assets.
The insurance needed depends on whether the property is ready for occupancy at the time of purchase or not. If the property needs rehab, you will need a builder's risk policy. A builder's risk policy covers the building, the items needed and purchased during rehab from theft, vandalism, or from other disaster.
If the property is habitable then you will need a landlord policy. The landlord policy covers the building and all items that you provide to the occupant. Be sure to explain to the occupant and have it as part of your lease that the occupant will need to have rental insurance policy to cover his or her personal items.
For added protection, the investor may consider additional liability coverage.
The investor needs to treat his portofolio of properties as a business; therefore, it is recommended that he or she consider having the properties under a land trust and/or business entities. Please read these articles for more information on the advantages and disadvantages for both the land trust and the business entities:
- Land Trust is a Good Option for Investors in This Market
- What is a Land Trust?
- Trust Transfer Made Easy
The investor must also understand the market, know the fair market rents, know the cost of rehabing and maintaining the property, and research the neighborhood that he or she is interest in investing in. Please read the articles below for more information on that:
If an investor is prepared and do research investing can still be as profit as it was in the recent past.
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