Getting your hands on a good rental property can mark the beginning of a long-term boon to your finances. Conversely, investing in the wrong rental can prove extremely detrimental to your financial bottom line and leave you reeling from buyer’s remorse. So, when seeking out – and proceeding to manage – your first rental property, it’s imperative that you avoid making a number of ill-advised mistakes. To help ensure that your first rental isn’t a purchase you regret, be mindful of the following blunders.
Having a Very Limited Understanding of the Market
A solid understanding of the real estate market will serve any first-time rental property owner well. So, if anyone you know has found success through owning and/or managing rental properties, make sure to get in touch with them before proceeding to purchase your first rental. Experienced landlords and property investors can provide you with a wealth of invaluable pointers and educate you on the tenets of successful real estate investments.
You can also benefit from working with a highly-rated real estate investment company. In addition to enhancing your understanding of the market, seasoned professionals will be able to provide vital insights on such concepts as core, core plus, value-add, and opportunistic real estate investments.
Purchasing Properties in Unprofitable Locales
The better the location, the more profitable your first rental property is likely to prove. This is why it’s strongly recommended that you research the respective locations of any rentals you’re interested in purchasing. No matter how keen you are on a certain property, a bad location can severely limit its profitability.
So, before breaking out any paperwork, take care to do a bit of location research. This will require you to carefully consider such factors as population size, local economy, home values and rent prices. At the end of your research, you should have a clear picture of how much demand for rentals exists within an area, how much the property in question is truly worth and how much you stand to profit from it each month.
Failing to Calculate Management Costs
It’s important for first-time investors to understand that being able to purchase a rental property doesn’t automatically mean one has the financial resources to maintain it. This is particularly true in the case of large multi-family properties, like apartment buildings and condo complexes. Since maintaining such properties often requires landlords to hire full-time maintenance personnel and dedicated property dealing agencies, anyone looking to purchase a multi-family rental should take these individuals’ salaries into account.
Conversely, if you’re interested in purchasing a small single-family rental, maintenance costs are likely to prove far less strenuous. In addition, depending on how skilled you are in various handyman disciplines, you may be able to fulfill most maintenance requests on your own. Of course, this isn’t to say that you should invest in a single-family property without first considering maintenance costs. For example, if the property in question is fairly old and/or poorly maintained, you’re liable to receive a large number of maintenance requests and have no choice but to enlist the services of outside contractors.
Refusing to Screen Rental Applicants
As a landlord, satisfied tenants who stay on top of rental payments are your most valuable resource. On the flipside, tenants who consistently fall behind with rent or refuse to pay it entirely can be a tremendous source of stress and a drain on profitability. Furthermore, refusing to screen rental applicants practically ensures that you’ll wind up with problematic tenants.
However, you can minimize your chances of taking on bad tenants by subjecting all rental applicants to a thorough screening process – after obtaining their permission, of course. Throughout the course of this process, you’ll be taking a close look at each applicant’s employment situation, how much income they make and criminal background. In addition, you’ll be communicating with any references they provide. While it’s easy to see why some landlords find this process cumbersome, your time and effort stand to pay off in a big way.
The right rental property can be an investment that pays off for many years to come. However, assuming that success is guaranteed is always ill-advised, regardless of how desirable a property may seem. Furthermore, given how expensive rentals are, it’s in your best interest to do your homework and exercise discernment when seeking out prospective properties.