So, when buying real estate in this type of economy you want to make sure you invest in real estate that is going to prove valuable and help you make money when the housing market turns around, and it usually does. It may just take some time. If you want to purchase a home as an investment, you must know what to look for.

What To Look For

• Consider the location – location is often more important than the home itself. Most people move to a location not necessarily to a house. Where is the home? Is it central to a metropolitan area? Is it close to good schools? Is it in a bedroom community? Find out what you are looking for and what other people may be looking for in the future.
• Consider the lot – does the property have an incredible view? Does the property have great landscaping? Often the land itself is also more valuable than the house. Someone can always add on to a house. A great lot is well worth its weight in gold. Is it private? Does it offer privacy? Can the owners build in privacy by adding some bushes? Are trees well-planted?
• Look at the house itself – when you find a good location and a good lot, the next step is to find a great house. There are several things to look at here. These include the house size, the number of bedrooms, the number of closets, whether the house has a garage. The more amenities a home has the more likely it is to prove attractive. But remember different people want different things. Some people may consider a basement far more important when buying real estate than a detached garage. Three bedrooms are typically far more convenient than two. A home with more than one bathroom is usually more useful than one.

You can also pull out tax-free money if you refinance after the property has appreciated and interest rates have fallen. If you sell the property and reinvest the money in another property, you may be able to avoid paying taxes on the sale.

But even with these advantages (as well as the many others) this kind of investment can turn into a disaster if you don’t take some precautions:

Expectations. Keep them reasonable. Positive cash flow is one thing; purchasing a new Mercedes by year’s end is another. If you don’t control your expectations, you may be tempted to push rents too high in which case, you’ll probably lose your tenants. Your rental rates must be realistically competitive.

Your Contribution. If you’re a handyman and are prepared to do a lot of work, you’ll probably get along fine. If you’re not, you’re going to have to consider hiring a property management firm, which has to be figured into your outgo-income ratio. For some people, the income may not be so attractive if they have to take on another full-time job to get it. Most property management firms will take this over for a percentage of the rental.

Rules and Regulations. You have legal responsibilities and liabilities, and ignorance does not qualify as an excuse for failing to abide by them. You need to do some reading. It’s better than spending that time (and more, probably) in the courtroom.

Property Inspection. Have this property inspected before you buy it. It will cost a little and very well may save a lot.

Leases. Make certain they are legal. It’s very difficult to sue a tenant for a violation if the requirement is not in the lease.

Check out Your Renters. Take your time to be sure your prospective renter is not a deadbeat. Check him out. Run references and credit checks. Go by the place he’s living now; you may find some valuable information about how he’ll treat your property.

Insurance. Make certain you have the right kind. Find an insurance professional you can trust to help you work out your package.

Emergency Fund. There will be unexpected expenses-you can count on it. An emergency fund of 20% of the value of the property is a good rule of thumb. If you can’t do that much, do something. Take the income from the property and get it invested in this fund before you spend any of it.

Things To Do

1. Visit the house first. Do a thorough investigation of the property yourself, and then get a professional inspector involved as well. And since you will be spending quite a lot of money in terms of an investment, it is important that you take the time to complete your due diligence.
2. Learn from others investor’s mistakes. The last thing you want to end up doing is making any sort of mistake that could have easily been avoided. Do enough back ground research so that you feel confident before taking your first step.
3. Be realistic. Investing in property can give you a handsome return but you need to understand the time frame. Make sure you leave enough lenience when it comes to calculating your expenses.

Things To Avoid

1. Jumping in before considering the market. This is probably one of the most common mistakes that is committed by all real estate investors regardless of experience. Even though you want a high profit, make sure that you do not “jump the gun”. Look at the market and read into it, then plan your strategy.
2. Skipping due diligence. Without adequate diligence, you probably won’t be successful. You’d be surprised how many people don’t take the time to research the property and the surrounding area.

1) Set A Reasonably Comfortable Temperature – Don’t set the temperature to the lowest extreme or the air conditioner will never cycle off, which will rack up your bill in no time.

2) Have Refrigerant Levels Tested – A refrigeration mechanic or contractor can test your system to determine if you have a refrigerant leak. If your system appears to be either cooling or heating less than normal, it is a good sign that you may have a gas leak.

3) Learn How To Use Your System Properly – If you are not entirely sure how to use your air conditioning system, chances are you might be using it wrong. Talk with an air conditioning contractor or take the time to look over the users manual for some good advice advice on how to best run your system.

4) Clean Filters & Air Ducts -Finally, give your air ducts and filters a quick clean. You’ll be surprised how simple it is to do, and your air conditioner will probably run better because of it.

For those not familiar with what a REIT entails, probably the best description of it would be sort of mutual fund that invests in properties. That is, the REIT will involve a multitude of properties and interest will be paid on the success of these ventures. The way in which money is earned on a REIT involves the purchase and sale and/or management of property, and rental income (equity REIT); the lending of money for real estate purposes (mortgage REIT); or a combination (hybrid REIT).

So, instead of venturing out into these investment options on your own you can invest in a collected managed portfolio of these ventures in the form of a REIT. Again, this is no different than a mutual fund and comes with relatively low risk and low initial capital investment. Of course, you could also invest big as well as seek aggressive and volatile REITs, but the choice is up to the investor.

Choosing The Wrong Mortgage. There are many types of mortgages that you can choose from, including fixed-rate mortgages, adjustable-rate mortgages, interest-only mortgages, and balloon mortgages to name a few. With so many to choose from, it’s easy to make the wrong choice, especially for buyers who aren’t familiar with the advantages and disadvantages of each.

Choosing the wrong home mortgage can be detrimental in some cases. You could find yourself owing the full balance of your home within a few years, or you may find yourself making higher monthly payments when the interest rate goes up. Before you make a final decision about a mortgage, make sure you fully understand the terms, interest rate, and life of the loan. Feel free to ask me as many questions as you need to ensure that you are getting the loan that is best for you and your circumstances.

Borrowing With Too Much Debt. Just because a lender approves you for a home mortgage with your current debt load doesn’t mean you should take it. Lenders analyze your debt in different ways to determine whether or not to extend a loan to you. Borrowing for a home mortgage when you have too much other debt will put a strain on your finances. When you have too much debt you are at a high risk of defaulting on your mortgage, which can lead to foreclosure.

Before taking on a home mortgage, do an analysis of your current financial situation. Consider all the income and debt you have, and also consider your current employment situation. How much will your income increase in the coming years? As a general rule, if your debt is more than 40% of your gross income, you should reconsider purchasing a home until you have decreased the amount of your debt.

Making Too Small A Down Payment. The less you put down on your home mortgage, the more you have to borrow. This ultimately leads to higher monthly payments, and the higher monthly payment may include the cost of Private Mortgage Insurance because your down payment was small.

Fortunately, higher monthly payments can be avoided. Even if you are unable to save up a sizeable down payment, it doesn’t mean you have to be put into a financial bind. It is best to save up as much as you can for a down payment and search for a home that is well within your budget and comfort zone.

When it comes to home mortgages, the key is to not bite off more than you can chew. A mortgage is a considerable undertaking, and it’s imperative that you prepare yourself!