Caveat Emptor, baby
There are so many ways to earn positive cash flows in the real estate investment world. So why entertain the notion of taking on huge property investment risks with non-performing, no-cash flow or negative cash flow investments? If you are wealthy enough, and a negative cash flow or extremely risky speculative property investment makes financial sense for you – strictly due to potential tax savings – then this article is not for you.
For all other property investors, then absolutely be aware of several real estate pitfalls that you should steer clear of in order to protect yourself. Again, always do your homework to ascertain the positive cash flow potential of any piece of rental property before moving forward to the actual acquisition phase.
Be wary of these investments
There are several real estate investments the basic or novice investor should be wary of, and stay away from like the plague. Chief among them are any rental property that throws of a negative cash flow. Certainly avoid second homes and investments in strictly land for speculative development. Unless you have totally concrete plans for a parcel of land, have gotten your feet wet developing a piece of land before, and know all the intricacies and local laws entailed in local land development, just steer clear of this form of property investing.
Likewise, investing in negative cash flow properties, as mentioned above, should only be done by those wealthy enough to yield a net positive return on their investment, by offsetting other earned income (and a lot of it at that) to make the losses worthwhile.
Avoiding time shares
Also to be avoided are vacation time shares as investments. They have some of the greatest property investment risks assigned to them.. They’re simply too risky because it’s so difficult to accurately predict what, if any, value will accrue as you continue to hold them. They are highly sensitive to overall market fluctuations, and can drop in value precipitously when you least expect it. They are also extremely difficult to predict future cash flows and rental income based on past performance. In addition, they ultimately can be very hard to unload should you need to resell them quickly. You could end up taking a really large haircut on them.
Foreign real estate dangers
Finally, be aware of the inherent risks involved in buying foreign real estate for investment purposes. As I have advocated in numerous articles here, try to stay close to home in your investing. You’ll get to know your local area a whole lot better than property bought farther away, or as an absentee property owner. This concept becomes heightened (as do the risks) when you consider buying foreign properties to rent out.
Risks inherent in foreign purchases include fluctuating currencies, wildly varying real estate laws from country to country, as well as the kind of real estate protection laws afforded here in the U.S. relative to other countries. So be very wary of all these property investment risks when evaluating your next set of real estate rental properties.
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