Rental properties can be huge moneymakers, especially in areas with abundant demand for housing. Unfortunately, many first-time buyers erroneously believe that every rental they stumble upon represents a wise investment opportunity. While there’s no denying that a good rental property can be enormously profitable, it’s equally true that a bad rental property can drain your finances and leave you stressed. So, if you’re interested in getting your hands on a rental property, it’s in your best interest to avoid the following missteps.
Purchasing Properties in Areas with Little Demand for Housing
According to a popular saying, there are three important things in a business “location, location and location”. Hence, prior to investing in a rental property, you’ll need to do some research into its location. Even if a property is well taken care of and packed to the brim with modern amenities, the area in which it’s located is liable to severely limit its profitability. In the interest of maximum profitability, you should seek out rentals in areas that have robust populations, strong local economies, and abundant demand for housing. Just remember that an amenity-light property in a booming area is likely to generate far more income than an amenity-rich property in an area where demand for housing is on the wane.
Purchasing a property in an unprofitable area may severely limit your chances of seeing healthy returns. Furthermore, should you decide to part ways with such a property, you’re likely to wind up selling it at a considerable loss. Not to mention the time it may take to find a willing buyer even at steal prices. So, if you’re currently asking yourself, “Is real estate a liquid investment?” it’s important to note that it typically isn’t, given how long sales can take to go through.
Forgoing the Screening Process for Rental Applicants
It’s not difficult to see why some landlords adopt a lax approach to tenant screening. After all, the screening process takes time, and units that are unoccupied are units that aren’t generating income. However, no matter how eager you are to fill empty units, skimping on the screening process or forgoing it all together is unlikely to work out in your favor. For example, in some states, evicting tenants for not paying rent can be a long and arduous undertaking. That being the case, you can save yourself a considerable amount of stress by placing every rental applicant who comes your way through a rigorous screening process, regardless of how good a job they do of presenting themselves over the phone or in person.
So, with each applicant’s permission, have a look at their credit score and criminal background, confirm that they have enough income to comfortably afford rent, and get in touch with any references they provide. This may take a little time, but putting forth the effort to properly screen applicants can save you a tremendous amount of trouble down the line. If you simply lack the time and/or inclination to carry out the screening process, consider outsourcing this task to a professional screening service.
Not Understanding How Much Maintenance the Property Requires
As the property owner, you’ll be expected to take point on a wide variety of maintenance tasks. When it comes to single-family properties, maintenance shouldn’t be too much of a hassle, and depending on your level of handyman expertise, you may be able to carry out most maintenance tasks yourself. However, when it comes to large multi-unit properties – i.e., apartment buildings and condo complexes – you’re likely to require the assistance of full-time maintenance personnel.
There are many factors that go into determining how much maintenance a property requires, with the age of the property and tenant error being chief among them. Still, no matter how new the property is or how careful renters are, any property that contains dozens – or hundreds – units is going to find itself in need of regular maintenance. So, if you’re interested in purchasing a large rental property, make sure to take the cost of hiring a knowledgeable maintenance team into consideration before getting started on any paperwork. There are horror stories aplenty out there of investors who failed to do due diligence when purchasing a property only to end up losing their investments.
There’s no question that rental properties often represent smart investments. However, this shouldn’t be taken to mean that one rental will prove as profitable as the next. In fact, without the proper research and prep work, your first rental property is liable to become a much costlier investment than you’d hoped. With this in mind, all rental properties investor should make a point of exercising caution, doing their homework, and putting genuine thought into every purchase they make.
Are you a first-time buyer or someone with an interesting investment story? Do share in the comments below.