Things to Know before Investing in Real Estate

With interest rates at record lows and home prices hitting rock bottom, hundreds of people are seizing the opportunity to jump on the real estate investing bandwagon. Even so, what seems like an easy ride to making a quick buck can actually be fraught with danger, and so investors are urged to take as many precautions as they can.

The profit potential of investing in real estate is huge, and investors can see very fast returns, yet they need to be aware that buying property is one of the riskiest and most complicated of all investments. The most experienced investors carefully weigh up their purchases, performing due diligence on every aspect of the deal to ensure their money is not frittered away.

With that in mind, a recent post by Zillow in the latest edition of Forbes points out a number of items that investors should pay attention to if they don’t want to end up getting burned.

Number one on Zillow’s list might be a pretty obvious one, but it’s also a point that needs to be expanded upon. Its one thing to have a home inspection, but Zillow advises investors to be aware that inspectors will only go so far – they will note what’s broken, but it’s up to the investors themselves to determine the costs involved with renovating and repairing a home, before making a decision on whether or not the property is a viable investment at the asking price.

Another necessity is buying title insurance. This is vital to safeguard against problems such as when it turns out the property was only part-owned by the seller, and the other party involved didn’t authorize any sale. Should something like this happen, the insurer would then be responsible for any costs involved with the dispute.

However, investors have to take careful note of the specifics of the title policy they take out, under the Schedule of Exclusions, which lists items that the policy does not cover.

Exactly what the investor is buying should also be legally defined. Investors should check to see if there is a county plat showing the lot lines, or else they should ensure that a survey is done so they know exactly what they are buying. For buyers of condos, they it’s important to review the recorded rights to such things as patio areas, parking spaces, interior space and so on.

Homeowners associations (HOAs) come with a high level of risk to investors as well. Properties such as condos or homes in housing developments will often belong to a HOA. The problem is that investors are buying into the HOA as well as the property, and so they will be liable to pay HOA fees. Investors are encouraged to carefully analyze the HOA they are buying into to make sure it is adequately funded.

The last major concerns of investing in real estate are to do with financing and insurance. Investors who take out a mortgage should shop around as many lenders as possible to make sure they get the fairest deal possible – something that involves comparing interest rates with fees to see which is better. As for the insurance, this goes without saying, but even so it’s worth taking the time to sit down with an insurance agent and going through exactly what needs to be covered so nothing is missed.

The point of all this is that investors should do everything beforehand to minimize their risk as much as humanly possible. The vast majority of investments gone wrong could have been mitigated if only the investors had carefully analyzed and researched what they were buying. On the other hand, those who do their homework will surely reap the rewards.