Real estate investing is becoming increasingly popular these days. In a world where uncertainty and market volatility reign supreme, real estate is essentially a lighthouse shining out into the dark, murky depths of a stormy sea, guiding investors to solid ground. That being said, plenty of jagged rocks lurk just below the surface of the water waiting to tear into the hull of your ship. If you’re not careful, those hidden dangers could leave you sinking without any life rafts to fall back on. Remembering certain key points is the key to staying afloat. This is especially true when it comes to the often-overlooked expenses of real estate investment.
Hidden Expenses of Real Estate Investments
When you’re looking at prospective properties to buy, it’s easy to get caught up in the listing prices. When you find a rock-bottom listing surrounded by nothing but favorable circumstances, jumping headlong into the purchasing process is certainly tempting. No matter how impressive the price may be, though, additional costs are going to enter the mix. Some of them are minor in the grand scheme of things, but others can add up to major expenses as the investment specialists at NRIA can tell you.
It’s no secret that interest rates factor into the equation when purchasing real estate. They rise and fall based on several aspects, and the type of loan you get can lead to fluctuating rates as well. At the same time, your credit rating and the lender will ultimately determine the interest rates you pay. Half a percentage point may not seem like a lot in a short-term sense, but that interest will accrue over time and leave you paying quite a bit more in the long run.
On top of that, getting a loan with a longer term will give you lower monthly payments, but it’ll also mean you pay more interest in the end. Shop around for a loan. Compare lenders, types of loans, and even interest rates in various areas before investing. It might take longer to get the investment ball rolling when you do all this research, but patience is a virtue.
Whether you’re flipping a home, investing in a commercial rental space, or planning to sell a property immediately after purchasing it, you’ll need some type of insurance coverage. It’s required in some cases, and failing to purchase coverage is just poor business practice. It’s important to have the right types and amounts of coverage as well. Getting more coverage than you need leads to unnecessary expenses. Having too little coverage could leave you paying a great deal of money out of pocket in the event of damages or losses. Potential injuries on the property and resulting lawsuits come into play as well.
If you invest in a rental property, ongoing maintenance and repairs will arise. Depending on your rental agreement, the tenants may be responsible for at least a portion of the repairs and general maintenance, but you’ll still be partially accountable for keeping up the property. There’s always the chance a tenant will unexpectedly leave the property in a state of disrepair without fulfilling his or her end of the bargain.
These are only a few of the most common major expenses of real estate investment. They’ll vary a bit based on the type of property you purchase and your plans for the future. Keep these in mind when searching for investment opportunities. Doing so can go a long way toward preparing you for the experience and maximizing your returns.