Your Investment Decision blinded by ownership?

Published on 05/01/2010 in Investment. 15 Comments Tags: .

When deciding on an income property investment, the mistake many new real estate investors make is to let pride of ownership influence their decision to make the investment. Because a property might be located in a low-income (not a high-end) area beginner investors regularly ignore the profit the property can produce and walk away from the opportunity.

The problem is that too many new investors look for investment properties with the same mind-set that they would look for in a house to raise their own family. They seek properties they would feel comfortable to live in, located in a neighborhood that they regard safe enough for their kids to roam and play, and loaded with tenants that they wouldn’t mind having over for dinner. But as lofty as those aspirations are, the realities of real estate investing and your notion about investment property is as equally flawed. Consider this.

Though you might want a rental property you would be willing to live in the truth is that you will probably never live there.
Though it is located in an area that you might feel uneasy about turning your kids loose, the truth is that your kids will undoubtedly never go there unless you take them there.
As for the tenants, be thankful they are willing to occupy and pay you rent for your units and never make it more personal than that.
Here’s another consideration. Can you even afford to buy a rental property that is located in your ideal neighborhood and with the qualities you want? Chances are not, but even if you can it rarely makes the smartest investment because you undoubtedly will pay a premium price at the seller’s terms.

Okay, now let’s consider the option of putting aside the desire to own the best income property in the best location and instead focus on the profitability opportunities that often occur with lesser complexes in less desirable locations. What can you gain?

Foremost, you would get a price and terms that are favorable and at the very least negotiable.
You might be able to get away with a lower down payment and thus better leverage.
You might find a seller willing to carry some of the financing at favorable terms.
And lastly, though not insignificantly, you could buy into an area least affected by recession.
In this case, the suggestion is not that you should buy in the worst neighborhood. The idea is for you to get your mind off investing only in prestigious properties in upscale neighborhoods (at least in the beginning, until you build your fortune) and concentrate on average buildings in average neighborhoods comprised of working-class tenants. Yes, it might require more hands-on management, but these are the type of rental properties where the real money is made because they commonly provide lots of positive cash flow. So you get more building for your investment buck and in turn can get your real estate investing career off to a very profitable start.

Of course no investment property guarantees you a profit. So always research and run the numbers diligently before you decide to make any real estate investment.

Article Source: http://EzineArticles.com/?expert=James_Kobzeff

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