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Real Estate News

February 21, 2012

How to Vet an Investment Property

- — Lower home prices and mortgage rates are causing many people to consider taking the real estate investment plunge. But as with any big financial investment, what may be a good strategy for some, may be harmful for others.

Something to keep in mind: If you are planning on trading cash in lower risk CDs or bonds for real estate, you are trading into a dramatically higher risk asset. However, if if you do decide to jump into the investment property game, you should make sure to vet the property investments you plan to acquire to better increase the chances that the real estate you buy will increase your net wealth, not decrease it.

This is, of course, assuming you already understand the most important item in investing: making sure the property you are buying is cash-flow positive based on conservative estimates, and provides you a fair rate of return on your investment. Read more about estimating cash-flow on properties here. What other items and issues does a buyer need to review when buying an investment property?

Home Inspection

Most people know to always have a home inspection done when they are buying property. While a competent home inspector will note all the items working or not, the inspector is not pricing out the costs to get all those items repaired, nor other items like painting, flooring, etc. that you might plan to have done. It’s your job to put together a list of all the work and get with your contractor to price them out. Put that number into your financial analysis and note that properties in poor condition rarely sell at a large enough discount to compensate for all rehabilitation work that needs to be done!

Title Abstract and Insurance

When you buy property, a title policy protects you in case there is a title problem, like the seller’s ex-fiancée was a part owner in the property but didn’t sign off on the sale. In this case, it is the title insurer’s problem and they will cover costs to defend you and settle any dispute, up to the policy maximum limit, unless the title issue was “Excluded” from the title policy.

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