Investing in your first rental property can do wonders for your financial situation. In fact, well-maintained property in a high-demand location can generate a sizable amount of passive income on a monthly basis.
However, not all prospective property investments represent a wise use of your time or resources.
Furthermore, even if you do manage to find a good property, you run the risk of harming your investment by making a number of blunders. As such, all first-time rental property owners will need to be extra mindful of the following behaviors.
Common Mistakes of First-Time Rental Property Owners:
1. Failing to Factor in Repair and Renovation Costs
Nearly every rental property you find is going to require some degree of repairs and/or renovations.
Depending on the type of work that needs to be done and how much it’s projected to cost, you may be better served by walking away from a deal and turning your attention to other rental properties.
So, before committing to purchase your first rental property, take care to have it thoroughly inspected and obtain an estimate for repair and/or renovation costs.
If the property in question doesn’t stand to turn enough of a profit to justify said costs, your money may be better spent elsewhere.
Additionally, if you’re still interested in purchasing a property that requires repairs and/or renovations, request that the seller consider the estimated costs when determining the final price.
2. Failing to Take Upkeep and Maintenance Costs into Account
Unsurprisingly, some rental properties require more maintenance than others. For example, a single-family property is unlikely to need the same level of upkeep as an apartment building or complex.
So, if you’re interested in purchasing a multi-family property, you may need to hire full-time maintenance personnel. Since this is going to require a fair amount of money, make sure to the cost of operating expenses how much money you stand to make from rental income each month.
Knowing how much upkeep a property will require – and how much said upkeep will cost – before finalizing a deal can save you a considerable amount of stress.
3. Hiring Unlicensed Contractors
There are a number of reasons you should avoid working with unlicensed contractors.
For starters, operating as a contractor without a license is illegal, and you’re likely to face a much greater degree of liability if an unlicensed contractor becomes injured while working for you.
Secondly, an unlicensed contractor is more likely to leave you high and dry before the work they were hired to do has been completed.
Lastly, an unlicensed contractor may not be keen on obtaining the proper permits for certain jobs or be well-versed in planning and zoning software.
So, while the comparatively low prices many unlicensed contractors offer may be tempting, you’d do well to stick with fully licensed and bonded professionals.
Of course, this isn’t to say that every licensed contractor you come across is going to be equally reliable. To help ensure that you don’t get stuck with a lemon, make a point of seeking out reviews from previous clients.
Thanks to the web’s abundance of consumer feedback tools, you should have no problem finding reviews for most of the contractors in your area.
4. Regarding Applicant Screening as Optional
If your tenants are unable to keep up with rent, you’re going to have a difficult time profiting from your first rental property. You can get a jump on this problem by screening every prospective renter instead of relying on your gut.
So, no matter how impressed you are by someone’s application or the way they present themselves in person, don’t neglect to run a credit check, confirm their income level, and contact references.
In the interest of safety, you should also encourage all new tenants to invest in renters insurance. Furthermore, since homeowners insurance can’t be used for rental properties, one of the first things you should do upon finalizing the sale is seek out a good landlord insurance policy.
Regret is the last thing you want to be feeling with regard to your first rental property investment. While the right rental property can be a reliably consistent source of passive income, the wrong one can be a money pit that costs you a lot more than it ever stood to make you.
Additionally, even after purchasing a desirable property, you can’t just sit back and expect money to come rolling in. In the interest of maximizing your success with your first rental property, take care to avoid the missteps discussed above.