Ways for First-Time Investors to Find Success with Rental Properties
There’s little wonder as to why real estate investment is among the most popular forms of passive income generation. Owning just a few desirable properties in high-demand locations can be a considerable boon to your finances and generate a fortune in passive income each month. Still, this doesn’t mean that every property investor is guaranteed to find success – especially if they become landlords without doing their homework. First-time property owners looking to see a generous return on their investment(s) should take the following pointers to heart.
Consult with Season Experts
If this is your freshman foray into rental property investment, you can benefit from seeking advice from seasoned investors. So, if you have any friends, family members or coworkers with experience in rental property ownership and/or management, make a point of running your plan by them and taking their feedback into careful consideration. People who have wondered how to become a millionaire through real estate investing should never pass up a chance to soak up the teachings of longtime property owners. Additionally, if you’re not comfortable entering into this venture on your own, consider partnering with other investors.
Thoroughly Research a Property’s Location
For many real estate professionals and rental property seekers, a property’s location is more important than the property itself. For example, a reasonably new property that’s full of modern-day amenities and contains plenty of space is liable to have trouble attracting tenants in a low-demand area. As such, you should never invest in a property without taking the time to meticulously research where it’s located.
When researching the locale of a prospective property, take care to bring yourself up to speed on the area’s median income level, crime rates, rate of growth, job market and schools. An area that’s found to be lacking in any of those departments may not be the best place to invest in a rental property.
Avoid Properties That Require Considerable Work
A fair number of the properties you come across are going to require small to moderate repairs and/or renovations. While this level of repair/renovation is to be expected, properties that need a significant amount of work done should generally be avoided by first-time investors. While investing in fixer-upper properties may become a more viable option down the line, it’s strongly advised that you avoid making a fixer-upper your first rental property. An investor with little to no experience in property ownership shouldn’t undertake the financially and emotionally strenuous task of fixing up a rental property that has fallen into extreme disrepair. Even seasoned investors tend to walk away from fixer-uppers, so no matter how amazing a deal you’re offered, abstain from purchasing fixer-uppers until you have more experience under your belt.
Properly Screen Prospective Tenants
When tenants are unable or unwilling to pay rent, property owners often have trouble affording property taxes, as well as maintenance and upkeep costs. Additionally, depending on where you’re based, evicting a delinquent tenant may be a long and arduous process. While there’s no surefire way to protect yourself from bad tenants, thoroughly screening every rental application that comes your way can prove very helpful in this endeavor.
Every prospective tenant should be subjected to a credit check. While a small amount of debt is to be expected, applicants who are completely drowning in it may have trouble keeping up with rent. Furthermore, every tenant you accept should have a regular source of income and make at least three times the cost of rent each month. However, applicants with good cosigners and people whose income comes from Social Security or disability payments can be the exceptions to this rule. The steadier an applicant’s income, the more easily they’ll be able to afford rent. You should also check every reference that applicants list, especially employers and former landlords. Furthermore, since homeowners insurance isn’t applicable to rental properties, encourage each tenant to invest in a good renters policy. (Similarly, you’ll need to invest in a good landlord policy.)
Although purchasing desirable rental properties in desirable areas can be a tremendous boon to your financial resources, it’s important to remember that not all property investments have equally profitable ROIs. Due to haste, inability to recognize certain red flags and general inexperience, many first-time investors have considerable trouble turning a profit with their properties. So, if you’re hoping to make your freshman foray into rental property ownership a successful one, take heed to the tips discussed above.