Real Estate: An Illusion That May Not Be What It Seems

As many have recently found, real estate isn't always a guaranteed winner when it comes to investments. However, if you handle real estate in the right way and have realistic expectations of what expenses are involved in property ownership and what your returns might be, you may not be disappointed in your real estate ownership experience. Just as with a relationship, real estate ownership is a partnership between you and the property, and if you treat your property right and don't expect the world in return, it might just return the favor -- but there are no guarantees. From property taxes to maintenance and repairs, here are a few items of which you should be aware before entering the realm of real estate ownership.

Property Taxes
Property tax is an expense that can sneak up on you as an investor in real estate and can weigh heavily on your ability to turn any sort of eventual profit on your property. Some might consider taxes just something that goes with the real estate territory. The problem is that unlike your typical purchase at the grocery store, taxes associated with property are not a one time expense, instead rearing their ugly head each and every year. What's worse is that your tax rate may go up with the whims of local government and there is little you can do to combat the increase. This is why it is important to go into a real estate purchase knowing full well what the tax rate on the property is, when the property was last assessed, how the tax rate is determined, and how rates have fluctuated in recent years. By knowing and understanding this information, you may better be able to gauge how much this tax can affect your ability to profit from your property.

Your Mortgage
The terms of your mortgage are of course another major factor in how successful you are in your real estate venture. Besides the obvious factors such as the interest rate and size of your mortgage, time is another important consideration that is often overlooked by potential real estate purchasers. Deciding between a long or short term mortgage may mean the difference in hundreds of thousands of dollars in the overall amount you spend to purchase your home. Sure, a 30-year mortgage may mean smaller monthly payments, but over the course of that mortgage term, you may pay tens of thousands of dollars in extra interest or more.

Meanwhile, a 15-year mortgage could mean much higher monthly payments, but you may be reducing the amount of interest you pay to your lender by almost half over the course of the mortgage when compared to a 30-year term. Extra payments put toward your mortgage could reduce this amount even more. Remember, typically the quicker you pay off your mortgage, the less money you'll be giving to your lender.

Renovations, Repairs and Upkeep
For real estate investors, especially those new to the game, renovations, repairs and upkeep of a property may be some of the most commonly under-appreciated aspects of property ownership. It's not that the investor fails to understand that these items will eventually be an expense, it's more that they may tend to diminish the likelihood or effects of these events or fail to realize the costs involved when they do occur.

Unlike renting, where tenants rely upon a landlord to fix everything from blown light bulbs to leaky faucets, home ownership often involves hundreds or thousands of dollars just in maintenance upon the property each year. Property owners may associate certain upkeep and repairs only with older homes or homes that have been ill-maintained. But even for owners of new homes, there is may still be yard and lawn maintenance to be done, trees needing to be trimmed, rooms to be painted, carpet needing to be cleaned, storm damaged to be fixed, and a plethora of other major or minor repairs or update work to be done. These items can be quirks in the works for those unsuspecting souls venturing into the realm of real estate investment, the costs of which should be factored in when attempting to understand the true expense of holding a property.

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