Good day from Crested Butte Colorado,
In today’s real estate market, purchasing cash flow or investement real estate can be a sound strategy. In Crested Butte, much of our ski resort real estate offerings include condos and single family homes that can be rented out short term (vacation) and long term successfully. There are a lot of seemingly juicy cash-flowing real estate options in the market right now but with every good investment opportunity there are numerous issues to consider and pitfalls to avoid.
Buyers make mistakes all the time when it comes to purchasing a "cash-flowing" piece of real estate. Buying a cash-flow or investment property takes serious due diligence and a "no-emotions" approach in order to maximize the return on investment and minimize the risk.
Here are 4 things to avoid when buying cash flow real estate in Crested Butte Colorado.
1. Forgetting to account for the management fees, vacancy and maintenance costs in calculating cash flow. Rent – PITI is used to calculate positive cash flow. If you do not account for at least 10% property management, 10% vacancy and 10% maintenance then you could end up losing money over time. It is much more accurate to take 70% of Rent – PITI to calculate positive cash flow.
2. Owner manage and/or sign up with the wrong property managers. Many folks in Crested Butte use VRBO.com to market their rental properties. And, they use local property management firms to manage the place and clean it up after a tenant leaves. This "disconnect" can cause tenants to take advantage of the "hands off" situation – they don’t pay rent and they trash the place and it could have been avoided by obtaining good property managers. Do not be afraid to pay your managers well, they will allow you to sit back and generate passive income and look for more profitable deals.
3. Too many upgrades – Do not over do it with upgrades for rentals. You are not living in the home or flipping the home. Only do upgrades that will increase rent, get tenants faster and stay longer or prevent more costly upgrades. Peform upgrades right before you sell, not before you rent.
4. Buy something they would live in or a property located in their neighborhood– Most people are more comfortable investing in their own neighborhood because they can see and "feel" the property giving them a false sense of investment security. Avoid this inclination. Buy a cash flow property because the numbers make sense and you have multiple exit strategies, not because you are comfortable with the proximity to you. You should like the property because the numbers make sense and the ability to get out of it at some point exists.
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