Are you planning on becoming a real estate investor? If that is the case, implant the old adage “experience is the best teacher” firmly in your mind. This should not only include the lessons you learn from your own actions, but your experience should also include the mistakes other investors are making. Only then you can become successful at property trading and move up the ladder faster than others. Specifically, this article deals with the dangers of investing in cheap properties, such as those sold at auctions.
No one misses out on a good bargain, especially if it is real estate. Interest rates are low these days, and properties acquired by banks are being sold at the fraction of the market price in auctions across the country. So why restrain yourself from investing?
These properties that are now being sold at auctions are the after effects of the 2008 housing crash. But we only learn from those who have purchased “in-bulk” about some serious problems involved in buying these cheap houses. There are several hidden costs involved, which make the whole bargain rather expensive in the long run.
To start off, you shouldn’t forget that these properties were once inhabited by entire families and are now vacant for quite a while. In short, they need maintenance. The longer this maintenance is delayed the great the bill is going to be when you finally decide to do some repairs.
Some of these properties were subjected to foreclosure, while others had owners who didn’t have any funds available to renovate their homes. In any case, the onus is on the investor to repair the house if he/she is to earn a profit on it.
For instance, simply replacing windows can cost you at least $7,000, and the cost can even in double in some cases. To fix the water heating system, you should be prepared to spend more than $1,200 on an emergency basis. And this is before the property is put out for rent once again. When new tenants move in, you should prepare yourself to answer calls related to repairs 24/7!
There is no use on commenting on the financial literacy in our society. In the pursuit of a cheap bargain, many investors simply do not consider the tax ramifications of buying a property, much to their own peril. This problem is worsened by the fact that the IRS has not provided clear guidance (even no guidance in some cases) on how to work out the tax issues on auctioned houses.
That is why you need to hire a financial expert to help you in this regard. A careful review by your tax advisor prior to consummating any specific transaction is critical.
Don’t think that these are the only problems of buying cheap properties, for there are issues of insurance and pest control as well. This article was written just to help new investors understand the real cost of purchasing property. Learn to look beyond the price tag.
Here is a short clip providing tips for buying cheap properties: How to Profit by Investing in Cheap Properties