Are you being smart about real estate decisions?
I bought a $25,000 rental unit at age 22, straight out of college. I'm very proud of the fact. I talk and write about it often, always with a sense of accomplishment… mixed with loads of regret. If only I had known some of the things that I know now.
Real Estate Mistakes I Made When I Was Young
I confess, I didn’t do much research when I bought the place. I went to see it one lovely spring morning and noticed that the building was old, but that it was set in a pretty green area, five minutes’ walk from a train that would take you to Paris in 20 minutes. The apartment was on the 13th floor, and it had a great view of the surrounding parks – even a couple of lakes. It was very small – 200 square feet – but I had been living in a small place as a student, so it seemed okay. Besides, it was all I could afford at the time.
A few years later, when I decided to sell it, I discovered a whole set of problems that I hadn't noticed before – the main one being that the homeowners association (HOA) was deep in debt due to a lot of people failing pay their maintenance fee. As a result, everyone was paying into the HOA's accumulated debt with interest.
On top of that, we used to have separate elevators for odd- and even-numbered floors, but only the “even” one worked. So you had to go one floor up to 14th, then go down a flight of stairs to access my floor.
It wasn’t fair, and it certainly discouraged prospective buyers. Even though prices had gone up, the price I wanted seemed unrealistic.
So I decided to wait. That’s when my tenant died.
He was a 70-year-old man who didn’t always pay rent on time (I had insurance to cover that), and then he would pay for three months all at once. I couldn’t evict him because there was a law to protect people over 65. When he died, I discovered that he had gotten married shortly before.
I had no idea that two people lived in that tiny apartment. Things went sour when the widow refused to either pay rent or move out. She wasn’t on the lease, but apparently she had another law on her side. My property manager said we could only wait, and then try eviction. By then, winter had kicked in, and yet another French law prevented heartless homeowners from evicting tenants between October and March.
On March 15 – a year and a half after she started defaulting on rent – they finally managed to send the cops to evict her. Thankfully, my insurance covered the 18 months of lost rent.
But by then, the neighborhood had become worse – a place for gangs and drug dealers, where slumlords would break your door down and move a poor migrant family in. The new squatters would start having rights 48 hours after they moved in. If such a thing happened, I’d be in for another 18 months of procedures, this time uninsured. So I had to rent a special heavy-duty door and have somebody come to check it three times a week for six months, until I was able to sell the place for $50,000 – twice what I had paid for the eight years prior.
I was an absentee landlord, living literally an ocean away.
Don't keep a rental unit if you're not going to be nearby to know what is going on with the tenants.
Now that I am little older and wiser, I look at buying homes differently than I used to. I no longer fall for the pretty green parks, or even the lakes – though, I admit, they are nice features. Here are a few tips, if you're looking to buy your first property:
1. Look at the Neighborhood.
I visited this place in the morning, but apparently at night, the area was hell. Visit by day, by night, on weekdays, on a weekend – any time you can think of – to make sure that the place is nice and safe.
2. Google It.
I could have read a lot from the local papers. Make sure you read up on an area before you buy your home.
3. Check out the HOA.
How much do they charge? Do they have debt? Where does the money go? High fees mean a lot of maintenance – what happens if people don’t pay?
4. Buy Less House Than You Can Afford.
Better be safe and buy a place you can afford on one salary, than to buy a too-big house that you might lose money on if you need to sell it quickly.
5. Buy the Worst House in the Best Neighborhood.
A good neighborhood means good schools, public transportation – you name it. Better to have the worst house in that neighborhood than the best house in a bad one.
6. Look at the Market.
Check out the houses for sale around you. How much are they selling for? That is a good indicator of what you can expect if you need to sell.
7. Conduct a Proper Inspection.
When you buy a house, extra fees are annoying. But better to pay $500 more on a good inspection than to pay $5,000 down the road for a fault that you didn’t spot.
8. Consider All the Fees.
Yes, you can afford the mortgage. But can you comfortably pay a mortgage, plus HOA fees, property taxes, maintenance, repairs, and whatever else might come your way? You should even consider the cost of groceries – if they are more expensive – and the cost of traveling to work to make sure that your new place is a good fit.