Here’s the good news – tamping down the potential disadvantages of investment real estate is actually quite simple. While you won’t be able to eliminate the risks completely, I offer the following tips to inform your decision making process.
Be Realistic with your Expectations – Of course your goal is positive cash flow, but keep your lifestyles of the rich and famous dreams in check! Just like with the sale of a property, the market, not you, sets the price of the home. Resist the temptation to raise your rental rates to unrealistic rates, potentially pushing out good tenants.
Balancing Act: Earnings vs Effort – Do you plan for a hands-on approach as a landlord, or will you work with a property management firm? Passive income will feel anything but if you are putting in long hours as a landlord after working a full time day job. There are property management firms that will run your rental property for a percentage of the rental income, and this may be a wise investment if you are employed full time.
Know the Rules of The Game – Federal and state laws outline your responsibilities and liabilities, and you won’t be able to claim ignorance if something occurs outside the bounds of the law in a rental transaction you are a party to. You are responsible to do your due diligence, and an investment of your time at the library or with a legal expert in the field of Real Estate could help you avoid courtroom drama later on.
Inspect your Investment – I would never advise a client to invest in a property for personal or income purposes without conducting a professional property inspection. One of the best ways to avoid unexpected expenses is to have the property inspected by a professional before you buy it, and this is true of both a personal home purchase and a rental property.
A Well-Written Lease is Worth its Weight in Gold – If you are unfamiliar with the process of creating a property lease, consult an expert such as a Real Estate attorney or property management company. Expect the best, but prepare for the worst; if you find yourself in court later for a tenant violation of the lease, the terms of the lease will be your ultimate advocate.
Take the Time To Call References and Run Credit Checks – Too many landlords rush to fill a vacancy rather than taking the time to make sure the prospective tenant is a better option than an empty property. If you have time, you may want to drive by a prospective tenant’s current living space – that is what your property will probably look like when that tenant lives there.
Join the Landlords’ Association in Your Area – Joining an association will provide you with a wealth of experience as well as sample leases, copies of laws and regulations, and lists of decent lawyers, contractors and inspectors. Some associations may even allow you to join before you buy a rental property. Make the most of the connections available to you and network network network to gain knowledge about your Real Estate investment.
Make Friends with a Lawyer, a Tax Professional and a Banker – If you find that you like owning rental properties, a network including these three professionals will be essential if you want to increase your holdings.
Make Sure You Have the Right Kind of Insurance – After learning the rules, you will need to buy insurance to cover your liability. You will need the help of an insurance professional to select the proper package for your type of rental property.
Create an Emergency Fund – This is essentially money earmarked for unexpected expenses that are not covered by insurance. There is no set amount for an emergency fund. Some say 20% of the value of the property, but anything is better than nothing. If you are getting current income from a property, you can pool that money into an emergency fund until you have a level of emergency savings you are comfortable with. Plan for potential vacancy periods; How long would you be able to keep up mortgage payments on your investments without a tenant in place? Plan accordingly.
Investing in a rental property can be an excellent decision if you go into it informed. Whether your dream is a cozy cottage in the suburbs for your family or an entire condominium building in the city to invest in, give me a call. I’m here to help with all of your personal or investment property needs.