Tuesday, July 24, 2012

Do You Know the 7 Things That Can Destroy Your Investment Real Estate Value?

The primary motive for real estate investing, of course, is the money. Wealth is the essential reason why people invest in real estate, and typically the first thing people think of when they consider owning investment real estate.

One of the advantages of owning income-producing property is that income generated from rent can be quite considerable if a property is bought and managed correctly. If a real estate investor doesn't overpay for a property, keeps expenses down, the apartments rented, and the building well maintained, a real estate investment can generally make the investor money, even while the investor sleeps!

Notwithstanding, there are there factors that can cause a real estate investment to lose value. Moreover, it can have a drastic effect upon a rental income property's ability to generate profitability, despite the investor's efforts.

Okay, let's look at undoubtedly the 7 worst contributors to the deterioration of rental property value.

1. Neighborhood Decline

The community surrounding the income property can change in a variety of ways that adversely affect your real estate income property. Increasing vacancy, for instance, can lead to reduced rents, which in turn means reduced maintenance causing building deterioration, in turn causing the whole neighborhood to slip into decline and therein triggering a domino effect that simply compounds the problem. The nearby construction of facilities such as sewer treatment plants and airports will also likely have an adverse effect on the area. Also, perhaps more subtle and slower in coming, is a decline due to increased crime, perhaps resulting from an adjoining neighborhood spill over.

2. Impact of Adverse Infrastructure

The impact of being directly under the flight path of aircraft, for example, can have a negative impact on a property's ability to attract (or keep) tenants. Likewise, construction of a major highway or intersection can limit access to the property, and cause noise and dirt by the construction to drive tenants out. Perhaps the result may be an increase in your investment real estate value, but construction can take up to a year or more and during that time you can expect your real estate investment value to drop.

3. Controls and Regulations

Governmental controls and regulatory changes to zoning can adversely impact real estate investment property. Real estate investors that purchase raw land for development, for instance, can see their plans grind to a halt because of a building moratorium or anti-development sentiment. All of which, of course, results in a plummeting value.

4. Wear and Tear

Whether its air and heating equipment, driveway surface, electrical wiring, hot water heaters and boilers, roofing structure, plumbing or paint, sooner or later it will require maintenance and/or replacement. The value of investment real estate is reduced by the economic obsolescence (out-of-date) items if they are not properly maintained.

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