When deciding on an income real estate investment, the mistake many new real estate investors make is letting pride of ownership influence their investment decision. Because a property may be located in a low-income (not high-end) area, first-time investors typically ignore the returns the property can produce and walk away from the opportunity.
The problem is that too many new investors look at investment properties with the same mindset that they would look at a home to raise their own family. They look for properties they feel comfortable living in, located in a neighborhood they feel is safe enough for their children to roam and play, and full of tenants they wouldn’t mind having over for dinner. But as lofty as those aspirations are, the realities of real estate investing and your notion of investment properties are just as flawed. Consider this.
- Although you may want a rental property that you would be willing to live in, the truth is that you will probably never live there.
- Although it is located in an area where you may feel uncomfortable letting your children loose, the truth is that your children will undoubtedly never go there unless you take them there.
- As for the tenants, be thankful that they are willing to occupy and pay you rent for their units and never make it more personal than that.
Here is another consideration. Can you even afford to buy a rental property that is in your ideal neighborhood and with the qualities you want? Most likely not, but even if you can, you rarely make the smarter investment because you will undoubtedly pay a premium price on the seller’s terms.
Well, now let’s consider the option of setting aside the desire to own the highest income property in the best location, and instead focus on the profitability opportunities that often present with smaller complexes in less desirable locations. What can you win?
- First of all, you would get a favorable price and terms and, at the very least, negotiable.
- You may be able to get away with a lower down payment and therefore better leverage.
- You may be able to find a seller willing to take some of the financing on favorable terms.
- And last but not least, you could buy in an area less affected by the recession.
In this case, the suggestion is not that you should buy in the worst neighborhood. The idea is that you stop thinking about investing only in prestigious properties in exclusive neighborhoods (at least at first, until you build your fortune) and focus on average buildings in average neighborhoods made up of working-class renters. Yes, it may require more hands-on management, but these are the kind of rental properties that make real money because they typically provide a lot of positive cash flow. So, you get more construction for your investment, and in turn, you can get your real estate investing career off to a very profitable start.
Of course, no investment property guarantees you a profit. Therefore, always do your research and calculate the numbers diligently before deciding to make any real estate investment.