Getting your hands on a hot rental property in an in-demand locale can be a boon to your financial bottom line. With the right rental property in your corner, you stand to rake in a small fortune in passive income on a monthly basis. However, if you’re not careful, your first rental property can quickly turn into a bad investment. By making an effort to avoid the following rookie mistakes, you can help ensure that you don’t wind up regretting the purchase of your first rental property.
Purchasing a Property Sight Unseen
Under no circumstances should you purchase a property that hasn’t been meticulously inspected. Even if the seller isn’t trying to take advantage of you, there could be problems with the property that they’re not even aware of – problems that won’t become apparent until after you’ve taken ownership. So, no matter how amazing a deal a seller presents you with, you should never agree to invest in a property sight unseen. In addition, if a seller ever tries to make this a prerequisite, you should walk away from the deal entirely. There’s little wonder as to why many experienced investors advise against making a fixer-upper your first rental property.
In the interest of making a safe investment, have any property you’re thinking about purchasing thoroughly inspected by seasoned professionals. No deal should be finalized before a property has been looked over by a knowledgeable plumber, electrician and building inspector. Any problems that these individuals find stand to enhance your bargaining power – or enable you to walk away from a deal with no regrets.
Hiring the Wrong Contractors
In many respects, the amount of money you can expect to spend on repairs and renovations depends on the contractors you hire. While some contractors will provide you with reasonable estimates at the outset, they won’t hesitate to go over-budget once the actual work begins. Additionally, some contractors simply aren’t that good at what they do, and poor workmanship stands to impact a property long-term.
That being the case, it pays to be selective when hiring contractors. For starters, make a point of limiting your options to contractors who are fully licensed and bonded. While working with an unlicensed contractor can be tempting on account of their comparatively low fees, they don’t have to answer to the same authorities as their licensed contemporaries, meaning they’re more likely to go over-budget or simply abandon jobs altogether. Furthermore, it’s illegal to work as a contractor without a proper license. In addition, when working with contractors, make sure you have access to dependable contractor license management software.
One of the best ways to get a feel for how a contractor does business is conducting online research. Fortunately, the web has no shortage of consumer feedback resources, so you have no excuse for not carrying out this vital step. While most of the contractors you come across are likely to have a bad review or two, you should write them off if you discover that client feedback is overwhelmingly negative.
Taking on High-Risk Tenants
Given how important dependable tenants are to the success of any rental property investment, it’s strongly recommended that you take the applicant screening process seriously. Many prospective renters may paint a flattering picture of themselves in person or over the phone, but putting on a good show doesn’t mean someone will be able to keep up with rent.
So, when reviewing applications from prospective renters, make sure to contact any resources they provide. In general, employers and former landlords will be able to give you a clearer picture of what you can expect from someone than friends and family members. Additionally, take care to run a credit check on every applicant. While few of us have flawless credit, someone with a consistently messy credit history may not be the safest pick. You should also confirm that applicants have enough income to comfortably pay rent in a timely manner. This is why many landlords require applicants to make three times the cost of monthly rent – or to have a cosigner who does.
For their own well-being, you should encourage all tenants to purchase renters insurance. Similarly, since homeowners insurance can’t be applied to rental properties, you’ll need to seek out landlord insurance.
Buyer’s remorse is the last thing you want from a rental property investment. Considering how large a price-tag is attached to the typical rental property, such an investment should not be made lightly. So, when preparing to make your first foray into rental property ownership, it’s imperative that you exercise caution, ask questions and not be afraid to walk away from potentially disastrous deals. In your efforts to avoid making a bad investment, be mindful of the missteps discussed above.
Alton Clarke was born and raised in Syracuse. He has written for MSNBC, The Business Insider and Passport Magazine. In regards to academics, Alton earned a degree from St. John’s University. Alton covers entertainment and culture stories here at Diving daily.