Founding Attorney
Congratulations, you’ve decided to start investing in real estate! Investment properties, whether residential or commercial, can provide a steady stream of mostly passive income — provided you don’t make one of the common real estate investing mistakes.
If you’re new to the real estate game, professional guidance can help. A real estate lawyer with knowledge of your area, its property values, and New York real estate and contract law can guide you through your purchases, negotiations, and closings, helping you avoid pitfalls that could tank your investment.
Here are three common mistakes to avoid.
Not Having a Solid Plan
You may know that you want to invest in single-family homes in your area, but where do you start? Perhaps you would rather work with commercial tenants and invest in commercial development and leasing. But do you have an investment strategy? How will you manage the property once you purchase it?
When the market is hot, or if there’s a lot of competition for prime properties, it can be easy to get swept up in a buying frenzy. But it’s important to resist the temptation to purchase without a plan. Instead, determine your investment property goals and then deliberately seek only properties that can fit your plans.
Failing to Do Due Diligence
Before making a major purchase, what’s something you typically do? Research it, test it, inspect it. You wouldn’t buy a car without taking it for a test drive, and you shouldn’t make a major real estate purchase without determining if it’s a sound investment.
Due diligence in real estate means reviewing the details of the property — both the title and the physical structure — to ensure that it’s a sound investment and there are no potential problems, either legally or structurally.
Take the following actions before making an offer on a property:
- Visit the area at different times to get to know the neighborhood, traffic patterns, and busiest times of the day
- Have the property formally inspected by a licensed property inspector
- Review the crime statistics in the area
- Review the area sex offender list using the U.S. Department of Justice’s National Sex Offender Public Website to see if the property is safe for families
- Look for any encroachments on the property; you may need to consult your real estate attorney about resolving these
- Get quotes for any necessary repairs to bring the building to code
- Have the property formally appraised
- Prepare a cash-flow analysis to estimate your ROI
This isn’t an exhaustive list — just the bare minimum you need to do if you want to ensure your property is a sound investment. Your real estate attorney can advise you of other considerations for the specific property you have in mind.
Making Risky Investments
There can be a time and a place for risky investments, but real estate is not one of them.
For example, you may find a nice single-family home in a good neighborhood at a great price. But it may need extensive repairs to make it attractive for good tenants. The amount you spend on fixing the property could eat up your profits for an entire year, and the longer it takes to complete the repairs, the longer the property sits empty, not making money.
This is a bad investment that could have been avoided with a good inspection, which would have uncovered the repair needs. Make decisions based on the logical conclusions from your research — don’t let yourself sign a contract based on an emotional impulse.
Professional Advice Can Help You Avoid Common Mistakes
A real estate lawyer can help you determine which properties are good investments and can act as the cool head of reason if you get emotionally attached to a particular property. They also review your contracts, conduct a title review, and help you negotiate the terms of the purchase.
Merlino & Gonzalez, real estate and elder planning lawyers in Staten Island, NY, offer comprehensive real estate legal advice and services. Get in touch with our team today!