If you’re looking to generate a small fortune in passive income each month, investing in a rental property is a prospect worth considering. Investing in a desirable property in an area with robust demand for housing can prove to be one of the smartest financial moves you ever make. However, failing to proceed with caution or assuming that success is guaranteed are unlikely to serve you well in this endeavor. Investors looking to maximize their odds of success should work to avoid the following missteps when seeking out potential rental properties.
Not Seeking the Advice of Experts
You’d be wise to seek the advice of seasoned experts before investing in your first rental property. A highly-rated real estate investment company can provide you with invaluable pointers on locating high-return properties and making the most of your investments. The right company will also be able to answer any investment-related questions you may have, such as “What happens to real estate during inflation?”
Not Bothering to Screen Rental Applicants
Without reliable tenants, even the finest rental property can result in financial losses. Since dependable renters are the lifeblood of any rental property, it’s only fitting that property owners treat the screening process with due importance. Among other things, this means not going with your gut when it comes to the renters you take on. Just because an applicant makes a fantastic first impression over the phone or in person doesn’t mean they’ll make a good tenant. Additionally, depending on your locale, you may find evicting tenants for failing to pay rent to be a frustratingly arduous undertaking. So, when reviewing applications for prospective renters, don’t skimp on the screening.
The more effort you put into the screening process, the less likely you are to wind up with tenants who are unable or unwilling to keep up with rent. So, after receiving an applicant’s permission, look into their credit score, income situation and criminal history. While it’s a given that very few applicants are going to have perfect credit, it’s generally a good idea to avoid prospective tenants who are drowning in outstanding debt.
You’ll also want to make sure that every applicant has enough income to comfortably afford rent. For example, many property owners require applicants to make at least thrice the cost of rent each month, as this minimizes their odds of being unable to keep up with rent. Furthermore, while criminal convictions needn’t necessarily preclude someone from being able to rent from you, it may be a good idea to reject applicants who have been convicted of crimes that could place other tenants in danger or cause damage to the property.
Failing to Plan for Emergencies
No matter how desirable an area a rental property is found in or how meticulously maintained that property happens to be, failing to plan for emergencies is pure folly on the part of property owners. For example, you should never assume that a property is always going to have occupants. There are a wide variety of reasons for which housing demand drops in certain areas, and even the best properties can go long periods between renters. That being the case, having emergency funds on hand for such periods can help ensure that you don’t have to sell an oftentimes-profitable rental property.
Of course, a temporary lack of tenancy isn’t the only emergency that can befall rental properties. Even properties that receive a steady amount of upkeep aren’t immune to the occasional maintenance emergency, and assuming that such emergencies will never happen is unlikely to work out in your favor. As such, make sure that you always have funds in place to cover maintenance emergencies – especially since certain emergencies are liable to fall well outside of your monthly maintenance budget.
Investing in a rental property can be a boon to your long-term financial goals and provide you with a significant amount of passive income. Of course, this doesn’t mean that investors can simply purchase a rental property and wait for the cash to start rolling in. There are a number of common missteps that impede the success of newer property owners and leave them reeling from buyer’s remorse. In the interest of avoiding such an outcome, make an effort to avoid the blunders outlined above.