By Sumona
Investing in your first rental property represents an important step towards enhanced financial security and the generation of passive income.
However, while rental property ownership can be a highly profitable venture, success is far from a guarantee – particularly for investors who have little to no experience in real estate. With this in mind, take care to proceed with caution when seeking out your first rental property.
Steering clear of the following missteps stands to save you a considerable amount of time, money, and hassle.
Failing to Research a Property’s Location
Many seasoned rental property investors tend to regard a property’s location is more important than the property itself. Since rental properties in high-demand areas with strong job markets, low crime rates, and good schools command much higher rents than properties in less desirable areas, it’s hardly surprising that other investors place such a strong emphasis on location.
With this in mind, never make an offer on a rental property before thoroughly researching its location. Even if a property is fairly spacious and new, its location may prevent you from being able to charge your desired rental rate.
Throughout the course of your research, take care to look up local rents, crime rates, median income, and rate of growth. If the location in question is lacking in any of these areas, it may be in your best interest to look for properties in more desirable locales.
Purchasing a Property Sight Unseen
No matter how good a deal you think you’re getting, you should never purchase a rental property – or any property, for that matter – sight unseen. Investing in a property without doing at least a single walkthrough can pave the way for massive regret down the line.
Not only should you go over any prospective properties with a fine-toothed comb, but you should also enlist the services of an experienced home inspector. This person will thoroughly examine the property for signs of structural damage, plumbing problems, electrical issues, and other potential deal-breakers.
Taking the time to have property inspected ultimately stands to save you a fortune in repair and renovation costs. Furthermore, it can also strengthen your bargaining position.
For example, if a home inspector comes across problems that the seller was trying to hide or was outright unaware of, you’ll be well within your rights to request that they drop the asking price. If you’re investing in real estate with your 401k, it stands to reason that you’d want to get the best deal possible.
Not Considering Repair/Renovation Costs
A significant portion of the properties you explore is going to require some degree of repair and/or renovation. While this is particularly common with older properties, it’s hardly surprising for newer properties to need work done, as well.
So, prior to getting started on any paperwork, make sure to obtain estimates from licensed contractors and request the cost of necessary repairs/renovations be deducted from the asking price.
Depending on how amenable the seller is to this request, you may want to consider walking away from the deal – especially if the property requires extensive repairs/renovations to be livable. As a general rule of thumb, you should avoid making a fixer-upper your first rental property.
Not Considering Maintenance/Upkeep Costs
The cost of a rental property isn’t limited to the initial purchase price. In addition to property taxes, you’ll need to consider maintenance and upkeep costs. If you’re investing in an apartment building or condo complex, you’re going to need to hire full-time maintenance personnel.
Furthermore, depending on how much grass surrounds the property, you also need to contract with a local landscaping service. Additionally, since you can’t apply homeowners insurance to a rental property, you’ll need to invest in a good landlord insurance policy. For maximum security, tenants should be encouraged to find convenient renters policies.
There’s no question that investing in rental properties can make you a fair amount of money. Good properties in good locations can generate a fortune in passive income on a monthly basis. Still, this doesn’t mean that every foray into rental property investment is destined for success – especially when first-time buyers are involved.
However, by making an effort to avoid making the missteps discussed above, you can dramatically reduce your chances of developing a case of buyer’s remorse in the wake of your first big investment.
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