Featured Posts

Why I still Invest in Apple Let's face it -- most of us are Apple investors. If you deny, look at top ten holdings of any mutual fund that you own. Unlike old superstar stocks of the past -- Intel, Microsoft or Dell to name a few -- there is something unique about Apple. It has brand... Read more

How to Choose a Real Estate Agent in India For India’s vast middle-class, buying a house is a dream come true. Many will save over decades to find one or two properties that are the perfect size, in the perfect location, for a good price. Considering the size of the Indian real estate market, this... Read more

3 Risky Investment Properties To Avoid Note: This is a guest article by Tali Wee of Zillow All investments carry some form of risk and real estate properties are no exception. First-time real estate investors exploring the most lucrative opportunities must complete their due diligence before... Read more

Seven Ways in which Small Businesses Are Reducing Overhead Costs As a small business owner, you want to keep overhead expenses low to see the biggest profit margin. Of course, some expenses are essential, but that does not mean they have to be high. Savvy business owners are making the most of a number of different features... Read more

lnvestment Lessons from Warren Buffett Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays. -- Warren Buffett While Warren Buffett... Read more

Six Things to Know Before You Start a Fashion Business The fashion industry may seem quite overwhelming to someone trying to get their name out there and open a business. Prior to laying out the plans for said business, the owner should step back and take a look at the broader picture. There are six important things... Read more

Is Tesla Still a Worthy Investment? "Is Tesla still a worthy investment?," asked a friend of mine who read my article which I wrote back in June of last year. A lot has happened since then. Tesla stock has doubled in price and Elon's presence in the media is omnipresent. This guy is one of... Read more

Year 2013: My Favorite Personal Finance Articles It is hard to believe but, indeed, year 2013 is in the box. For stock investors, it was a banner year. Nasdaq finally climbed back to its old highs and other indices performed brilliantly as well. While pundits on the Street may have tried their best to... Read more

That Mutual Fund is Robbing Your Retirement "I don't take risk, so I invest in a mutual fund," said a friend with a smirk. He is not alone. I have known many friends who take pride in handing their hard-earned money to the Wall Street gang. If you are one of the proud mutual fund investors, I am about... Read more

How to Make Money Online Internet has definitely transformed our world. From a street smart's perspective, Internet has ushered a new era of knowledge that was confined in the walls of libraries around the world. It has also made harder for biased journalism to twist facts and control... Read more

How to Invest Money in Any Market [caption id="attachment_4819" align="alignleft" width="640"] photo by: Grant Wickes[/caption] Let's face it, not all investments are made equal. How to invest money is  as much or more important than how to earn and save money. I have known many friends who... Read more

Mr. Money Mustache and Jim Collins: An Interview [caption id="attachment_4746" align="alignleft" width="640"] ....photo by: timmycrockery[/caption] Mr. Money Mustache is the Babe Ruth of the early retirement zealots on the blogosphere. His fiery style with a touch of badassity has inspired thousands around... Read more

Get Free Articles!

Proud Member of Yakezie

3 Risky Investment Properties To Avoid

Category : How to invest money, Retirement, Smart Investment Ideas

zillow

Note: This is a guest article by Tali Wee of Zillow

All investments carry some form of risk and real estate properties are no exception. First-time real estate investors exploring the most lucrative opportunities must complete their due diligence before purchasing. Investors don’t stumble upon highly-profitable, passive opportunities. However, with plenty of homework, they can find properties in quality condition, located in popular markets where long-term profitability is possible.

Here are three investment properties where investors risk steep losses.

1. Vacant Land

First-time investors might know a friend or relative who invested in land years ago and sold it for impressive profits to a developer, or lucked out when that rural location became a coveted neighborhood. Although major profits are possible through vacant land investments, those cases are typically long-term ventures. In most cases, significant land value appreciation takes years.

While owners wait for increased property values, they pay annual property taxes without earning income from the undeveloped land. Taxes on vacant land are cheaper than developed properties, but the fees still increase the cost of the investment. Zero income generation, and guaranteed losses of annual taxes make vacant land an investment to avoid. Alternative investments offer shorter-term return potential such as stocks, bonds and positive cash flow rental properties.

2. Development Properties

Just as vacant land lacks positive cash flow, so do development properties. Without income generation, investors must pay significant costs beyond the initial purchase prices of the properties. Investors shell out exorbitant fees for entitlement and development authorization. The process typically requires approval from federal, state and local governing bodies to meet development regulations including land use, permitting, zoning and infrastructure codes.

This authorization process sometimes takes several months before the added cost of the construction begins – all without positive cash flow. Development properties are risky investments because they require long-term commitments for positive returns, and investors face expensive costs with challenging loopholes. Development properties are better opportunities for affluent, experienced investors.

3. Prize Vacation Homes

Another high-risk but attractive investment is the prize vacation home. Whether on a beach, near a national attraction or in an exotic, luxurious locale, sought-after vacation homes are often unstable ventures. Principally, the prices of these properties are bloated and therefore the costs of their mortgages are also enormous. With large mortgages comes high property taxes and pricey insurance.

Beyond this initial hurdle, vacation rental cash flow is fundamentally unpredictable because availability is often inconsistent. In the location of the property, how many weeks of each year are considered vacation season? How many of those weeks can the owner book annually? These answers might vary per year based on something as random as the weather forecast. Expensive vacation property owners also face major availability challenges when the economy struggles because travel is a luxury.

Provided mortgages are affordable and owners fully book their properties throughout vacation season, the costs of operation are enormous. Typically, vacation property operations cost 60 to 75 percent of the total property revenue, before the cost of the mortgage. Owners pay for utilities, amenities, general upkeep, cleaning services, emergency maintenance for vacationers, transaction processes and check-in/out services for guests. Therefore, prize vacation rentals leave narrow profit margins causing them to be high-risk investments.

Real estate investments are a gamble, and any property without proven, positive cash flow or at least the long-term commitment for potential appreciation is generally an unreliable, high-risk investment.

photo by: pfsurgeon

Related Posts Plugin for WordPress, Blogger...