The most common mistakes real estate investors make:
Location. The possible income directly depends on where the real estate unit is located. It is worth remembering that not always an old house on the outskirts of the city will be low-income. It’s important to build on your goals and the needs of potential customers. Yes, you cannot turn your house into an apartment in the center, but no one forbids turning it into a cozy nest for a weekend break. Location is not only a point on the map and belonging to a particular area, it is the infrastructure around: shops, cafes, public transport and so on. All this plays a significant role in the selection of real estate. And here it is important to focus on the future, to have information on what will happen to the area in the near future. In order not to buy an apartment with the view to the cement plant, which will be built in a year.
Calculation of income excluding expenses. The second most popular mistake is when an investor considers only how much he will spend on buying real estate and how much he can earn on it. He does not take into account the costs associated with paperwork, with the possible repair of the premises or its equipment, forgets about expenses for electricity and water, taxes and so on. Such, at first glance, small expenses add up to an impressive amount, and the deal no longer looks profitable. In recent years, the purchase of apartments instead of a flat has become very popular. However, when buying, you should take into account that the property tax rate for apartments is 3–10 times higher than for residential property (1.5% and 0.1% of the cadastral value, respectively) … As a result, tax payments may exceed the estimated rental rate.
Lack of demand . You can already imagine a picture of how shopping areas are filled with large stores or the office is in full swing, but days, months pass, and your premises is half empty. This means that it does not bring the expected income. To avoid this, keep track of the average market value of similar offers and do not overestimate the rental rate. In the expense item, enter the point — advertising. You have to tell potential clients about yourself so they know about your offer. And remember that what you offer people is in a sense your face. Would you like to work in an office without renovation, with problems with heating or with parking in the next block?
Problematic tenants. It is impossible to completely protect yourself from people who do not make a monthly payment, do not fulfill the terms of the contract, or report problems when you have already flooded your neighbors, but before making a deal, you should check the tenant. Find out about his ability to pay and the reason why he terminated the contract with the previous landlord. To have reliable information, contact a past landlord and ask their opinion of your future tenant.
Object liquidity. Unlike the same stocks, real estate is more difficult to sell quickly, while also making a profit. Therefore, it is worth calculating and constantly monitoring the liquidity of your premises. What is the demand for it, can you use it as collateral if you urgently need money. Especially in times of crisis, sales times can be extended to several months.
To become a successful investor in the real estate market, you do not have to become a house manager and monitor every square meter of your premises. First of all, a successful investor monitors and analyzes all processes related to the market. He must carefully approach each proposal, deal and partners. To do this, there are many paid and free on- line services.
Fincase specializes in creating IT solutions to optimize and automate the entire asset management cycle. The new product “FOND” is applicable to all areas of business that are related to real estate turnover (banks, investment holdings, broker agencies, etc. ). The service allows you to calculate the liquidity level, the exposure period of the collateral object and the rental rate, taking into account analogues.
“FOND” determines the potential value in a given time period, taking into account the development of infrastructure around the facility and its most efficient use.
The Fincase team has created an irreplaceable product that will provide the user with the most reliable information about the situation on the real estate market and the investment attractiveness of properties. Up to date analytics helps the investor to receive the desired income and increase his capital.
Dmitry Tsyplakov, CEO/Product manager of Fincase.
Denis Podshivalenko, Ph.D., MRICS, digital asset valuation expert, CEO of vOcenke.ru exchange.