Although you have a lot to gain from investing in a good rental property, you also have quite a bit to lose from investing in a property that fails to generate returns. As such, it pays to be extra discerning when seeking out your first investment property. Given the magnitude of such a purchase, it’s strongly advised that you do your homework and form a solid understanding of the real estate market before proceeding to close any deals. To help ensure that your first rental property constitutes a sound investment, take care to avoid the following blunders.
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Overpaying Due to Lack of Research
Few things are more frustrating than vastly overpaying for a rental property. So, in the interest of saving yourself a tremendous amount of regret, make sure to do your homework in advance of making a serious offer. For starters, you’ll need to research what kinds of prices similar properties in the area are selling for. If you discover that these properties have much smaller price tags attached to them than the one that’s piqued your interest, request that the seller explain the rationale behind their asking price. Additionally, had you intended to make an offer that was much closer to said price, you’ll now be able to amend it accordingly.
It’s also a good idea to assess the general profitability of the area in which a property is based. This entails looking into an area’s population size, rate of growth, long-term growth projections, rent prices and property values. In addition to providing you with a solid understanding of how much demand for housing exists within a locale, this info will give you a good idea of how much you should offer for a property and how much rent you’ll be able to charge.
Should you require further assistance in determining an area’s overall profitability, get in touch with a seasoned real estate investment company. Not only will experienced pros be able to show you the ins and outs of proper location research, they’ll be happy to educate on the one percent rule in real estate and various other tenets of smart investing.
Forgoing a Pre-Purchase Inspection
To be clear, you should never invest in a rental property that hasn’t undergone a pre-purchase inspection. Furthermore, under no circumstances should you allow a seller to dissuade you from having an inspection carried out. No matter how convincing a seller is or how flawless a property appears to be, a pre-purchase inspection from a knowledgeable professional is crucial to making an informed investment decision. Even if you’ve personally gone over the property with a fine-toothed comb, this should never be regarded as a suitable substitute for a professional inspection. In fact, buying the best home insurance is often impossible in the absence of a formal inspection.
A property may appear to be perfectly-maintained, but as a nonprofessional, you have no idea what sorts of problems could be hiding beneath the surface. There may even be issues of which the current owner is completely unaware. Furthermore, should an inspection turn up such problems, you’ll be able to amend your offer accordingly or, if the issues are large enough, simply wash your hands of the deal altogether.
Regarding Tenant Screening as Unimportant
You’re going to have a difficult time making money with your first rental property in the absence of tenants who are willing and able to comfortably afford rent. Additionally, depending on where the property is based, evicting tenants for nonpayment of rent can prove extremely cumbersome and time-consuming. As such, it’s imperative that you thoroughly screen every rental applicant, regardless of how well they come across over the phone or in person. If you simply lack the bandwidth for proper tenant screening, take care to outsource this task to a reliable screening service.
Even if a certain rental property appears to be a perfectly safe investment, it’s imperative that you do your homework before proceeding to make an offer. Although some rentals can prove to be extremely fortuitous investments, it should never be assumed that this is the case across the board. And considering how much a rental property is likely to cost you, it’s only fitting that you’d be as thorough as possible in ensuring that it’s right for you. To this end, you’ll need to steer clear of the missteps outlined above.