5 things to consider before buying your first rental property
If you read this blog on a regular basis than I really don’t need to tell you that real estate investing can be one of the most rewarding investment strategies out there. With low mortgage rates, now may be the time to make the leap into property investment. But, don’t expect to become an expert overnight.
Below, I’ve outlined my top five things to avoid so you can help ensure your investments pay off to the fullest.
1. Not Doing Your Research
When buying a car, people often compare different models and prices; plus, they ask a lot of revealing questions to determine if the purchase is worth the money. These same research methods should be applied to real estate investment but should be as meticulous.
Learn local landlord-tenant laws and zoning requirements — all of which could affect your investment goals.
• Research the location; pay extra attention to crime rates and issues like flood zones.
• Do an in-depth inspection of each property’s condition.
• Discover what amenities tenants most desire in each location you consider investing.
Doing your due diligence in your research will ensure you make well-informed property investment decisions.
2. Failing To Make Goals
A common error new investors make is not setting specific goals from the start. Not setting goals after buying a property is a guaranteed way to lose money. Prior to the house hunt, create a list of goals for your future investment property:
• What type of property would you like to purchase? Are you looking for a single- or multi-family home?
• Where would you like to purchase your property? Is it in a vacation destination?
• Do you want to purchase a fixer-upper or a newer property?
3. Buying The Wrong Property
While buying the wrong property can be a symptom of the previously mentioned mistakes, I think it’s one of the biggest mistakes you could make as an investor. Anxious buying can lead to overspending, and emotional attachment can cause you to buy with your heart rather than your head. Both scenarios could leave you with the wrong property:
• Think like a tenant. Research what tenants will be looking for in a property and know the type of tenant you wish to rent to. For example, if you desire to rent to families, look for a property in a good school district with a safe neighborhood and multiple bedrooms. Additionally, don’t forget to research local rent prices to know what tenants might be willing to pay.
• Avoid properties that require extensive maintenance. Always keep an eye out for major repairs or renovations when inspecting a property. Cracks in walls, damp basements and signs of pests are red flags that indicate the home will need maintenance and may require more money than you hope to spend.
• Invest based on your goals. As I already mentioned, the property you purchase should align with your investment goals. Real estate agents (or your heart) may try to persuade you to buy a property not in line with your investment strategy, but remember to stick to your intended goals.
4. Underestimating Expenses
In a dream world, our only investment expense would be the mortgage. But on top of a mortgage lies maintenance costs, appliance and yard upkeep, and HOA fees, along with property taxes and homeowners insurance. And this isn’t an exhaustive list! If you end up buying a property that you ultimately can’t afford, you will constantly be worrying about whether you can sustain your investment.
Before ever making an offer, make a list of all the monthly expenses associated with a potential property.
5. Doing Everything on your Own
We’ve all imagined it — becoming a successful do-it-yourself property investor with little to no help. Newsflash — even the DIY landlords who claim they’ve built all of their success on their own had help.
Smart investors tap into every resource they have to glean property investment knowledge. This includes establishing a network of supportive professionals like real estate agents, home inspectors, attorneys and insurance representatives. Utilizing experts’ knowledge can prevent you from buying the wrong investment property, one with maintenance, location and even legal issues.
Additionally, you do not have to manage renting your property alone. Property managers are a great option for landlords who desire to be more hands-off, and there are plenty of resources and tools you can utilize to manage your property.
Buying your first investment property is an exciting opportunity, but needs to be done strategically and with the right amount of research. If you or someone you know are looking to make the jump into real estate, our team of realtors and property management staff are here to help.