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

From Wikibooks, open books for an open world
Jump to navigation Jump to search

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.