4 Unseen Real Estate Investment Costs That Can Crush Your Killer Deal
All too often, novice real estate investors see a deal, do some hasty mental calculations, and then jump in with both feet, only to find themselves blindsided by hidden costs they did not take into account. Even those who do diligent calculations may find themselves widely off base, simply because they underestimated the cost of renovations or failed to include property taxes in the equation.
Hidden costs can turn a fantastic deal into a so-so deal, or even eat into your bottom line far enough to put your profit in jeopardy. Here are some of the expenditures most frequently overlooked by new investors.
Loan Interest Rates
If you secure private lending for your home purchase, you may feel that the battle is won. Your lender may be funding your project, but they aren’t doing it for free. Interest rates can vary, and can cost you several thousand dollars over a period of several months. Make sure you understand the bottom line here.
You may realize that you have to pay mortgage payments. But you may not realize all of the other costs that go along with carrying a property month after month. You’ll need to pay taxes and insurance, and electricity and running water are a must for rehab projects. Though not immediately crippling, these costs add up quickly, and, since they are the most likely to be left out of the budget, add up, and they’re the most likely to sucker-punch you somewhere down the line.
Getting a faulty estimate, going with the lowest estimate, having an overly ambitious plan, failing to provide a cushion for unseen problems, or simply failing to take the cost of little things like paint, cleaning supplies and fixtures into account can derail your budget quickly and eat into profits. Make sure that you get a thorough estimate from a trusted expert (never, ever try and guess yourself). When you consider project proposals, look at quality and efficiency of previous work done rather than the cost alone. A shoddy job, or a job in which corners have been cut to save money can cost you in resale value, so you won’t be saving anything by going with the lowest estimate. That said, avoid over-improving for the neighborhood and adding unnecessary perks and upgrades – they may not get you the return you imagine.
Real Estate Fees
Closing costs can jump out at you if you’re not paying attention, and real estate commissions can be overlooked during the sales process. Your realtor should get about 2 percent of the purchase price. As with the rehab costs, going it alone during deals can appear to save you in the short run, but not having an expert in your corner to find and secure you a great deal can cost you in the end.
Whether you are new to the real estate market or just looking to brush up on current skills and knowledge, the Property Acquisition Specialist Course can teach you the overall process of how to quickly locate the best “off-market” properties in your market and get those properties under contract.