Things Many First-Time Rental Property Investors Get Wrong
A well-maintained rental property in a high-demand area can be among the most profitable investments you ever make. However, assuming that every rental property investment opportunity you come across will be a slam dunk is pure folly. Purchasing your first rental property without doing your homework can have lasting financial consequences, and in the interest of avoiding them, you’d do well to be mindful of the most common mistakes made by many fledgling investors.
Neglecting to Do Proper Location Research
When it comes to real estate investments, location is king, and if you’ve ever found yourself wondering why so many investors embrace the mantra “Location, location, location,” you can rest assured that there’s a good reason. Simply put, rental properties that are located in areas with large populations and abundant housing demand generally rake in healthier returns than properties found in areas in which demand is on the wane. While there’s no question that the overall condition of a property is important, many investors understandably view it as secondary to location. Additionally, a property in a high-demand area can prove to be a valuable piece of real estate during inflation.
So, before committing to purchase your first rental property, make sure to thoroughly research the area in which the property is located. If the population is constantly growing, property values are high and rental rates are healthy, there’s a good chance that demand for housing is robust. Conversely, if the population is consistently shrinking, property values are on the decline and rental rates are too low to be profitable, you’re better off expanding your scope to other areas.
Regarding Prepurchase Inspections as Unnecessary
No matter how confident you are in a property’s condition or location, you should never commit to purchasing a rental property that hasn’t undergone a meticulous inspection by an experienced professional. Discovering well-hidden problems with a rental property long after the paperwork’s been completed can prove tremendously frustrating and, in some cases, financially ruinous. So, in the interest of ensuring that you don’t get stuck with a money pit, refuse to move forward with any deals until a prepurchase inspection has been carried out.
While doing a detailed personal walkthrough of a prospective investment property is certainly important, this should not be regarded as a suitable substitution for a professional inspection. Certified inspectors are trained to catch problems that many of us would never think to look for, much less be able to identify. If an inspection reveals issues with a property that had been hitherto unknown, you may be able to request that the seller deduct the cost of fixing them from their original asking price. Furthermore, depending on the results of the inspection, you may deem it wiser to simply walk away from the deal and set your sights on other prospective investment properties. In either case, prepurchase inspections help ensure that you’ll have all the information needed to make an educated decision.
Read Also: Advantages of Owning a Commercial Property
Adopting a Lax Approach to Tenant Screening
At the end of the day, no rental property can generate income without tenants who are willing and able to stay current with rent. Furthermore, depending on the state, evicting tenants for nonpayment of rent can prove immensely difficult and time-consuming. That being the case, it pays to be extra-thorough when reviewing rental applications, regardless of how eager you are to find tenants.
With each applicant’s permission, confirm that they have sufficient income, decent credit scores and references who are willing to vouch for them. While there’s no surefire way to determine which applicants will keep up with rent and which won’t, taking the time to properly screen every applicant can dramatically diminish your odds of getting stuck with unreliable renters. Additionally, you should never treat a good over-the-phone or in-person interview as a substitute for a thorough screening.
Rental properties can be highly profitable investments that generate a lifetime’s worth of passive income. As such, it should come as no surprise that such properties are often owned and operated by the same families for generations. However, while there’s no denying that rental properties can be a boon to your finances, this doesn’t mean that every rental represents an equally wise investment. Furthermore, if you’ve never managed a rental property, going into this role unprepared is likely to cause both you and your tenants a fair amount of frustration. To help prevent such outcomes, make a point of avoiding the missteps outlined above.