Although rental property investments can be a boon to your finances, not all investment opportunities are going to prove profitable.
In fact, some stand to bleed you dry financially and leave you wondering why you didn’t give the matter more thought.
That being the case, it pays to approach every rental property investment opportunity with caution. Steering clear of the following missteps can save you a tremendous amount of time, energy and capital and prevent you from making unwise investments.
Refusing to Have the Property Inspected
Purchasing a rental property – or any property, for that matter – without a thorough inspection is a decision you’re likely to regret.
Even if you intend to perform large-scale renovations to the property, certain issues that were unknown at the time of sale can make the process considerably costlier. With this in mind, never invest in a rental property that hasn’t been meticulously looked over by certified inspectors.
Subjecting the property to an inspection stands to benefit you in a number of ways. To start with, if the inspection reveals problems that you weren’t made aware of, you’ll be able to confidently walk away from the sale or request a reduction in asking price.
In other words, inspections only serve to strengthen your bargaining position, so regarding them as unimportant is extremely ill-advised.
If you come across a seller who’s unwilling to agree to an inspection, this should be taken as a sign to walk away.
A reluctance to have a property inspected is generally an indication that the seller is actively trying to hide certain issues or fears the discovery of hitherto-unknown issues that stand to weaken their bargaining power. In either event, an inspection should be an immovable part of any rental property purchase.
Not Taking the Time to Do Your Homework
In addition to knowing everything about any rental property you wish to purchase, you should also take the time to educate yourself on the location of any potential investment. As you’ll find, there’s a reason so many real estate professionals emphasize location above all else.
When conducting your research, there are a number of factors you’ll need to take into account – with local rent prices, median income, rate of growth and crime rates being chief among them.
This will provide you with an accurate picture of how in-demand the area is and how much of a profit you can expect your investment to generate.
If you have little to no experience when it comes to determining the desirability of cities, townships and neighborhoods, consider reaching out to a real estate investment company.
Not only will these people be able to educate you on location research, they may even be able to provide some pointers on how to become a millionaire through real estate investing.
Failing to Properly Screen Rental Applicants
Tenants who are unable and/or unwilling to pay rent can be a detriment to the profitability of your rental property.
While there’s no surefire way to determine which rental applicants will and will not be able to keep up with rent, taking the time to properly screen prospective tenants can effectively reduce your odds of taking on problematic renters.
As such, you should avoid going with your gut when selecting tenants. After all, being able to present oneself over the phone or in-person isn’t necessarily an indicator that they’re a safe pick.
When reviewing a rental application, confirm that the applicant has sufficient income to comfortably afford rent. Although many landlords only take on tenants who make at least thrice the cost of monthly rent, some exceptions to the rule can be made. For example, if a tenant has a stellar credit history, consistent income and/or a dependable cosigner, it may be safe to suspend the 3x rule. Additionally, with the applicant’s permission, run a credit and criminal background check.
While past criminal convictions needn’t necessarily preclude someone from being able to rent, applicants whose crimes could prove harmful to themselves, other residents or the property as a whole aren’t always the safest choices.
Your first rental property is not an investment to be approached lightly. Failure to properly research prospective investment opportunities or effectively manage the property in question is liable to prove tremendously draining to your finances and increase your stress levels exponentially.
Fortunately, by avoiding some all-too-common rookie mistakes, you can help ensure the success of your first attempt at rental property ownership. So, when it comes time to invest in your first property, be mindful of the previously discussed missteps.