It's not unusual for people living in California to consider the purchase of an investment property. Many people appreciate the security of owning real estate rather than worrying about ever-fluctuating stock prices. While real estate can be a good investment, it also has its pitfalls, particularly for novice property owners.
Prospective real estate investors may be able to protect themselves by carefully studying average rents in the area where they plan to buy. A long-standing rule in rental property investment circles is that one should only buy a building if the monthly rental income will be at least 1 percent of the purchase price.
Other financial issues to consider include the cost of making any necessary repairs and renovations as well as local property taxes. Before agreeing to purchase a building, investors may want to seek the advice of an experienced inspector who can give a reasonable expectation of what repairs cost. Similarly, buyers should also check with the local property tax assessor to determine what kind of taxes the buyer will have to pay every year.
First-time investors may also want to consider whether they wish to take on the role of landlord. Many people don't realize that being a landlord can require a great deal of time and diplomacy. Screening tenant applications, collecting rents and fielding calls about leaky roofs at all hours of day and night can be difficult. Some investors opt to hire a third-party property management company to oversee their real estate, and the cost of this service should be factored into a buyer's projected earnings.
Individuals considering purchasing an investment property may wish to speak with a commercial real estate attorney. The lawyer may be able to review the client's case and make recommendations regarding contracts, mortgage terms and understanding landlord-tenant law.