McDonald’s is one of the most popular fast-food restaurant chains globally. But what if I told you, McDonald’s is a real estate empire hiding under the guise of a fast-food chain?
If you are looking to invest in real estate in the United States, there are numerous options for you, ranging from residential properties to clubs or educational institutes.
If you are a beginner at this, there are a few things you need to know before investing in real estate. Today, I will be listing five types of real estate properties that you should avoid investing in.
1. Land Investments
Investing in properties that do not produce a significant rental income is not a good option. Numerous individuals buy homes in the hopes of seeing their value rise. Even if the property increases in value, it is necessary to consider its opportunity cost.
If you look at it, there is a higher chance of you earning more money if you would invest in properties such as:
In addition to that, it is somewhat risky to invest in such properties because there is no surety that their value will go up.
2. Unaffordable Properties
We have always heard the phrase “invest more, gain more.” However, I believe that investing after doing extensive research is more needed. Before buying an expensive property, you should calculate the attached costs.
Some of those costs are not being able to pay installments or losing the property to the bank due to being unable to pay mortgages. For instance, properties in San Francisco and Los Angeles are valuable; therefore, only a chunk of people can afford them.
3. Real Estate Developments
Real estate development refers to improving an existing property to increase its value. There can be several problems in investing in such properties such as:
● Environmental risks (Natural disasters)
● Unplanned improvements (unexpected additional costs)
● Competitive market
I suggest you do in-depth research about all these expenses and factors before investing in real estate.
4. Investments Resulting In Negative Cash Flows
While investing in a property, the most important thing to realize is that there is no or minimal negative cash flow. Negative cash flow refers to losing more money than you gain through an investment.
There can be multiple reasons why your property can result in a negative cash flow. Some of them are discussed below:
● Expensive maintenance costs:
Furnishing and electricity expenses.
● Location of the property:
If the property is out of range, it will be difficult for you to rent it out to tenants.
● Insufficient knowledge about the market:
If you ask for lesser rent, there would not be much profit margin for you.
● Insufficient advertising of your property:
It can make you lose better opportunities due to lesser people knowing about your property.
5. Foreign Real Estate
The risks of investing in overseas property are much higher than investing in your local market. It would be beneficial if you deeply research the ideal location for your venture.
Imagine you’re living in the United States and decide to invest in a property in Australia or Scotland. To make the most out of it, I would suggest you keep in mind all the possible risk factors such as:
1. different currency
2. different real estate laws
3. different market size, and
4. the country’s political and economic stability.
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