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Real Estate Investing: 8 Things to Avoid

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Real estate often makes big investments, but investors expect the return of that investment. A seemingly attractive investment can sometimes be problematic.

New York – In the early 20th century, American humorist Will Rogers said: They aren’t making anything more. ”

Real estate can be a great investment, but buying real estate is not as easy as Will Rogers made people believe. Investing in certain types of real estate can be an economic mistake. Consider the eight worst types of real estate to invest in.

Does not generate income

Drive down the main streets of a small American town and you’ll find dozens of empty storefronts for rent or for sale. Some of these retail spaces have been vacant for years. They may have once run a thriving business, but then a mall opened on the outskirts of the town, or a large box store offered cheaper prices. These main street businesses could have survived the Mall and Wal-Mart, but couldn’t survive the Great Recession, the competition of online retailers, or the closure of COVID-19.

“Look at that store’s building. The price is very cheap. Buy it. You may be able to make a significant profit and sell it in a few years.” But the store may have been vacant since 1995. there is. If you couldn’t sell it and use it as a retailer, do you think you can make a profit today?

Negative cash flow

Linked to a lack of income is the negative cash flow of real estate for sale. If you don’t buy real estate without income, why buy real estate that costs more to maintain than it brings? Do you know how to spell MONEY-PIT?

Too luxurious

What if the house you want to buy and rent is as luxurious as a 1% mansion? If families can afford to pay the monthly rent for such a house, why don’t they buy it for themselves? I don’t want to buy a luxury rental home like George Vanderbilt’s Biltmore House (yes, I’m ironic). Those who can afford high rent can afford to buy their own home. And there you are sitting with an empty house. And there is no income.

Too expensive

Ask a hard-working middle-class American family. It’s not fun to spend more money than what comes in. It’s always a good idea to follow the 28% rule. Some call it the 25% rule, while others refer to it. As a rule of 30%. This simply means that households should not spend 28% (or 25% or 30%) of their total monthly income on their total spending.

Housing development

Throughout the United States, there are old housing developments that have never been completely successful. Developers may have improved their land by adding sewers, water and electricity businesses. They may have put curbs, gutters, and even street pavements. But there is no house (maybe one or two if you are lucky). There is no business. These developers may have gone bankrupt.

Most of such failed developments seem to be in states such as Arkansas, Arizona, and New Mexico, but they are in all states. Perhaps the worst example of such a failed attempt was the I-30 Condo Scandal in Garland, Texas (a suburb of Dallas) in the 1980s. At that time, if I drove east from Dallas on the I-30, I would definitely pass acres of semi-finished condominiums and empty cement slabs. Developer Danny Faulker was finally sentenced to 20 years in prison, but suffered from terminal cancer and was sentenced to only four. This blunder fostered the savings and loan crisis of the late 1980s, costing taxpayers nearly $ 1 billion.

Real estate purchased just for gratitude

A wise investor familiar with future trends may make a fortune by buying undeveloped land in order to sell it when prices rise. An example of this success is in the area just east of Lake Samamish in the Seattle area. Prior to the 1970s, the area from the lake to the cascade was rural, with few homes and some small towns.

But when Microsoft moved to Redmond, a construction boom broke out and the area is now filled with exclusive areas. In 2019, Sammamish, Washington was considered the wealthiest city in the United States. Those who owned this undeveloped parcel of land before the Sammamish building boom came out like bandits.

But the buyers of undeveloped land that have lost everything are as much or more. They bought raw real estate in the wrong place and at the wrong time. Unless you have good experience predicting future growth and development in a region, this is probably an investment strategy to avoid.

Vacation timeshare

Timeshare properties have existed since 1969. The average cost of a timeshare today is $ 22,942, and the average annual maintenance cost is about $ 1,000. The stressful experience of dealing with a brute force salesman and the difficulty of getting out of a timeshare deal can be difficult.

Is a vacation condo worth a week? Why not take a vacation at a beach hotel at the time and place that best suits your schedule and your interests?

The nicest house in the neighborhood

You are looking for a home to invest in or live in yourself. A beautiful five-bedroom two-story building is for sale near a three-bedroom bungalow. Not only does the house have rooms for large families, but there is also a built-in pool in the backyard! The price seems decent for a square foot of a house, but due to its size it is more expensive than other houses sold in the neighborhood.

Such a purchase may be attractive, but think about it. Is this property highly valued compared to other homes in the area? Also, keep in mind that there are no promises that other areas in the neighborhood will improve. When it’s time to sell a beautiful five-bedroom two-story building with a built-in swimming pool, would a potential buyer want to live near a bungalow?

Conclusion

Investing in real estate is both economically and personally rewarding. However, it is important to recognize the pitfalls and understand that there are several types of real estate that you probably have to avoid. Will Rogers was right when he gave his opinion on the land- “they aren’t making anything more.” But open your eyes and use your head to help your purchases contribute to financial well-being.

© 2022Benzinga.com-Benzinga does not provide investment advice. all rights reserved.

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