Mistakes to Avoid when Buying Rental Properties

What else can give you a good, stable income better than your own rental property can give you? With the amount of rent getting higher day by day and even more such properties coming in the market with the increase in demand, you can definitely consider buying a rental property as an investment option. If you invest in a rental property, its value or rent won’t increase overnight; you have to be patient and consider it as a long-term investment, which will give you great value over time.

mistakes to avoid while purchasing rental propertiesby 401(K) 2013

There are a few common mistakes that you would definitely want to avoid before investing in such properties. By understanding these mistakes that others make, you’ll be in a better position to maximize your investment returns.

Lack of Proper Research

One of the most common mistakes is not doing proper research. One will ask here, what should I research? Well, there are many aspects where you want to be pretty sure about things that will affect the rental property’s value and your recurring income.

Also, understanding the demographics is very important. If you’re investing in a property that is in an area where there’s a big company and the company is in financial trouble, then you may face trouble, as the number of jobless people may also increase. Doing proper research about property types, average rent, locality, etc. is very important before investing.

Buying in a Hurry

Certainly one of the biggest mistakes is buying in a hurry. Not analyzing the after purchase implications would even cost you much more than the rent that you’ll be receiving. Do not make any hasty decision because it will only block your hard-earned funds in such, which will not give you substantial results.

Paying a Higher Amount

This will happen if you have not done proper research. The more you pay for the property, no matter how good a deal it is, the longer it will take to get an actual return on your investment. Ensuring that you are paying the actual worth of the property or less than that is a good thing, but also, do your calculations regarding the purchase and your costs incurred after you have acquired the property.

Underestimating Repairs

It is very important to inspect the property you’re going to buy because you may have to incur more expenses after purchasing it in order to make it ready for rental. This also allows you to make out estimates on how much you have to spend on repair costs, which will eventually help you to do calculations on profits and expenses. If you have to put a lot of money into repairs, it is advisable not to purchase that property. Rather, it would be wise to buy another property that has minor repairs compared to the previous one.

Who’s the Renter?

Do you plan to rent your property to anybody that comes in and asks for it? Or are you going to check out their background? This mistake is again common among many landlords. You should not just rent to anyone. Make sure you do a brief background check about the prospective renter. You don’t want to choose someone who has a bad credit history and does not pay rent on time. Check the references and their proof of income, and be very careful when you choose your renter.

Have a Proper Plan

What we’re trying to focus on here is having a proper planning for your investment. You would not want to have this particular property for a lifetime. Rather, you’ll be more interested in investing in some more good properties that give you more revenue. Have an exit strategy. Make sure you know when to sell this property and invest in another one for more benefits. You may even hire a professional property manager to manage your investment and property.

Avoiding the above mistakes will help you make more money out of your property investment. Happy investing!

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  • Mike Wolf says:

    Feb 19, 2014 at 2:14 pm

    It’s important when purchasing a rental property is not just the price but also the terms. Sometimes paying a slight premium to get favorable terms, vendor financing, or to get the right property sometimes trumps the actual cost of the property.

    Reply

  • Mark says:

    Feb 4, 2015 at 10:43 am

    I agree about paying the right price is essential. I always tell people that you make your money in real estate when you buy, not when you sell.

    Reply

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