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If you have recently purchased some real estate for investment purposes, you are in good company. Recent reports suggest that as many as 25% of these purchases are made by those who plan on using the property for investment purposes only. If you hope to “flip” the property there are 4 things you must be aware of that can put a crimp on your profits.
Property Taxes
Keep the property for a few years and you may experience a surge in property taxes especially if your taxes are reevaluated during that time. Some hot real estate markets have seen taxes nearly double in just 5 or 6 years.
Renovation Expenses
You may have purchased a “fixer upper” at a bargain rate. Once your project is complete, will you be able to recover the expenses and make a profit — especially if the value of your renovated property is above those in your neighborhood? In addition, can you withstand a correction in real estate values?
Insurance and Mortgage Costs
You will pay more for homeowners insurance if you do not occupy the residence and you have tenants. If you are financing the property you know that your mortgage rate is higher as well.
Rental Pressures
A market saturated with rentals will mean that the rents you can charge will be less than what you had hoped to receive. In some markets, you are required to get special licensing in order to be a landlord. In other markets the legal rights of tenants mean you could have a lengthy and expensive battle in ridding yourself of a bad tenant. Will the lower income levels coupled with the added expenses drag your investment down?
Of course, you can limit your risks [and costs] by doing the majority of the upgrades yourself, appealing excessive property tax increases, and finding for yourself a trusted and dependable tenant. It isn’t easy flipping a home, but with a careful analysis, plan and sheer determination it can result in strong profits for you.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter, and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which is being chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to launching the Old Dawg’s REI Network, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at-risk children.
