Real Estate Financing and Investing/Pitfalls of High Leveraged Real Estate Investing

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High leverage real estate investing sounds real good as long as you watch out for some of the pitfalls. They are:

  • Property values can go down as well as up. Some types of real estate and some parts of the country are experiencing value declines.
  • Select the property carefully.
  • Anticipate a rising market due to a lower mortgage rate or a high inflation rate before you jump in a high leverage world.
  • Look out for negative cash flow. Income from highly leveraged property may be insufficient to cover operating expenses and debt payments. Do not overpay for property and underestimate costs. Warning: Buying for little or nothing down is easy. The difficult part is making the payments. You should try to avoid negative cash flow (Note: losses are tax deductible, however).
  • Watch out for deferred maintenance. Deferred maintenance can create lots of problems down the road. You can avoid hidden costs and potential future expenditure by bargaining for a fair (or less than market) price and reasonable terms. In any case, over repair is poison to the high leverage investor.