Purchasing your first rental property can be a very lucrative and exciting moment in your life. Having multiple revenue streams can help free you up financially and allow you to accumulate a lot of wealth if you do it right. At Gavish Property Management, we specialize in investment buying and selling homes the quick, stress-free, and easy way. We put together a list of rental property mistakes to avoid.
Owning a rental property is a great business opportunity as well as an investment in your future. But things can go wrong when you underestimate the financial side of your business. Many first-time investment real estate buyers will underestimate the cost of maintenance and the amount of work that is needed to bring your investment to its full potential.
Before you purchase an investment property, you should have a full inspection of the property done and factor the cost of repairs into your overall budget. Dealing with major issues, like installing a new HVAC unit, upfront will save you money in the long run when you don’t have to pay for an emergency replacement for a tenant.
Many first-time real estate investors make the mistake of setting their rents too high by trying to offset the cost of repairs. While your property may no doubt be worth the rent, you have to consider the number of potential renters in your market. Setting your rents too high may have a negative impact on your rental property by keeping it vacant for too long. Having a good tenant that pays on time is always better than an empty, overpriced unit.
Talking off our last point, it’s important to screen for the right tenant. Ideally, you want to find a tenant that will pay their rent on time and respect your property. Need help screening potential renters? Here are some questions that you should always ask potential renters.
A big mistake that first-time landlords make with their investment properties is not factoring the cost of vacancies. In theory, your rental property should bring you income 12 months a year, but that’s only assuming that you have a tenant there to cover rent.
There are a few ways to handle this dilemma. One way is to factor in the average time that properties spend vacant into your budget. This means planning for 10 or 11 months of rent instead of a full year. The other way around this is to have a contract that outlines a rental period and any fees associated with breaking the lease or late payments.
As we just mentioned, having a contract is a great way to cover your bases. As much as we would all love to operate on the shake of a hand, the reality is that you can’t expect people to keep their word or even remember what the terms of the agreement were. Having a quality contract that outlines everything from dates to fees will save you a lot of time and stress down the road.