3 Common Mistakes when Purchasing an Investment Property

Purchasing investment property can provide you with a nice source of cash flow. However, many investors make mistakes when purchasing property that end up costing them money. Here are a few common mistakes that people make when purchasing investment property.

1. Failing to Consider Cash Flow

Many property investors purchase investment property without considering how much money they will be able to bring in in cash flow. When working with an investment property, the cash flow it brings is critical. If you cannot count on it to bring in a certain amount of money, you will not be able to make the investment work in most cases. It could severely drain your savings and make things much more difficult. Before purchasing a property, do a cash flow worksheet in order to estimate how much you will be able to bring in. Look at similar properties in order to have something to gauge it on. If the cash flow that you bring in does not meet your needs, do not hesitate to walk away from a deal.

2. Thinking You Can Add Value

Many investors purchase a property with the thought that they will be able to add thousands of dollars worth of value and then resell the property. In most cases, you will not be able to improve the property enough to add value beyond what you spend on improvements. While you should improve the property somewhat, you will not be able to add significant value in most cases. You should instead strive to make your money on the front end of a real estate deal. Look for properties that are selling for less than their value. You could find a property owner that is trying to sell a property quickly by discounting it. When this happens, you can take advantage of it and have instant equity. Then, whenever you sell the property, you will be able to realize appreciation and make some money.

3. Buying Properties with Serious Problems

Some investors will get involved with properties that have significant problems because of the extremely cheap price that the house is listed at. In the majority of cases, this is going to be a bad idea. You should try to stay away from problems that will require a significant amount of repair and resources to fix. For example, if a house is infested with mold in the walls, you should probably avoid it. In order to get rid of the mold, it would cost you thousands of dollars. After you spend the money, you will still not be sure that the mold is completely gone. Another example is if the foundation of the house has issues. Foundation repair can get expensive very quickly. Therefore, it is going to be in your best interest to stay away from houses with serious problems. There is nothing wrong with painting a property or putting in new flooring. However, if you are going to have to spend a lot of time and money to get the property up to par, start looking for a different investment property.