When investing in Colorado real estate, avoid the stock market mentality. Buying a Colorado home to turn into a rental property isn’t a get-rich-quick strategy, but a long-term approach for building wealth and passive income.
With real estate investing fever and a hot rental market in Colorado, it’s easy to get carried away. Just as the stock market doesn’t behave the same way over the decades, the housing market is also unpredictable. By working with a solid property manager and choosing the right Colorado home that draws a reasonable market rent off the bat, you avoid some of the real estate investing nightmares.
Buying a home you hate
Don’t buy an investment property if it’s a home you would not personally want to live in for at least two years. Oftentimes, investors save on capital gains taxes by moving into their rental homes for at least two years before selling. On other hand, the home has to appeal to renters. The goal is to avoid high tenant turnover with an attractive property that can produce passive income for 5 to 10 years or longer.
Going into it without cash reserves
Another common mistake is to take out money from retirement accounts to put the 20 percent typical down payment on an investment property. Oftentimes, investors don’t keep enough cash reserves. Make sure you have enough money for basic costs such as property management, maintenance and a few large expenditures such as A/C replacement.
Forgetting it’s a business
Owning a rental property in Colorado is a business. Even if you don’t want to play the “bad guy” when collecting rent or enforcing a lease, treat your Colorado real estate as though it’s your business. A good property management company helps you stay on track. After buying your first rental property, consider investing in more. Give yourself at last a year or two to make sure your real estate investing plans are successful.
According to a piece by forbes.com, investors often make renovations that don’t pay off in the long-term. Avoid the urge to constantly upgrade. Consider hiring a professional interior designer before selling or renting out your home. As an investor, rely on other people to help you reach your goals.