Avoid These 6 Real Estate Investments
Not all real estate investment properties are equal. When making real estate investments, you want to make money from them, not lose it. Ideally, you want to start generating income from the property within the shortest time possible. Therefore, some real estate investments may be perfect for residence, but not for generating cash flow. As an investor, it’s the bottom line that counts. So before you spend your hard-earned money, here are some of the real estate investments to avoid as well as things to look out for.
No Rental Income
Some people invest in second homes or even land in the hope that the value will go up and they can make a killing. That is okay, but it makes no sense if the property or land does not generate rental income in the meantime. This move is akin to keeping money under your mattress while it could be generating interest elsewhere. When the final sale goes through, the property owner will have to make reconciliation for the opportunity lost had the money been in an income-earning account in the bank or invested in shares.
Negative Cash Flows
“Prize property” such as fancy condos or beach property is appealing on paper. These investments give one the illusion of making $ 20,000 per night during the peak season. However, the seasons are usually few and far in between and there’s no guarantee in the current economy that these fancy, overpriced properties will be fully occupied at any given time. It would take you a long time before they generate positive cash flow, some as long as 20 years. Invest your money in property that has potential to generate positive cash flow from day one. Look for real estate investments that are in moderately prized zones for a better chance to make money. At least in these areas, the chances of having them fully occupied are on the higher side.
Tenant-in-Common Investments
These became popular especially between 2005 and 2007, with the single most attractive benefit of eliminating the hassle of managing real estate. However, the cost associated with these deals made it impossible to make any money from them.
Real Estate in a Foreign Country
Different countries have their own set of rules governing real estate and taxes. Remember also that there is the foreign currency risk since these deals are made in foreign currency. All these factors make real estate investments in foreign countries risky.
Deals on Development
There are many risks involved in development of land such as construction, market pricing risks and entitlement costs that are extremely high. An investor who is not prepared to lose his money should think twice before getting in development deals.
Condo Hotels, Time Shares and Intervals
These properties are not real investments as it’s difficult to predict on their cash flow and income. They are also very hard to sell; even if they are eventually sold, it’s often at a fraction of their initial cost.