It has been proven for decades that real estate is an excellent investment. Especially attractive are properties that will yield some sort of income. Before you sign a contract with any seller, make certain that you’ve been thorough in your research of your potential purchase.
Math is extremely important. First, if you’re concerned that the units in a multi-unit building won’t command enough rent, it might suggest that the property is overpriced. Next, if you need the rental revenues in the near-term, make sure that you’ve properly crunched the numbers against the mortgage you’re applying for. If you only make a small down payment, it’s likely that your monthly mortgage payment and maintenance costs will exceed the rent. In fact, it’s very difficult to achieve a positive cash flow unless there is a substantial down payment. This is especially true in our local market with its high prices. Can you afford the negative cash flow long enough for the property to appreciate? The majority of investors don’t want to have to “feed” their properties.
There may be issues between you and the seller. Most standard residential real estate contracts require that elements like plumbing and electrical components are in “working order.” If not, the seller is obligated to make the repairs. However, if you want certain improvements or repairs made before settlement, you need to make sure they are specifically written into the contract. Even more important than with single-family dwellings is the pre-purchase inspection. Make absolutely sure you’re dealing with a licensed professional who understands local codes and regulations. Determine expressly what repairs need to be made and the associated costs. Document them meticulously. Don’t sign anything with the seller until all issues are resolved.
It’s clear that you need to do a lot of investigation and legwork before purchas-ing investment property of any sort. Consult with a qualified mortgage loan officer and establish a financing plan. If the numbers add up correctly and you like the deal, make the seller an offer that is suitable to you and your purposes. If he or she rejects it, look elsewhere!