Things to Be Mindful of When Investing in Your First Rental Property
Where is the Property Located?
As any seasoned real estate aficionado can attest, location is oftentimes more important than the overall quality of a rental property. For example, if a property is located in a popular, in-demand area, many renters are liable to overlook size constraints and/or a general lack of modern amenities. On the flipside, if a new, well-maintained property is located in a high-crime, low-demand area, you’re likely to have problems finding prospective renters – especially ones who are willing to pay your desired rental rates.
So, before committing to purchase your first rental property, do some research on the area in which it’s located. Should you discover that rental properties are in high demand in the area in question, that should definitely be taken as a plus. For example, property investors in the Lone Star State should consider looking at homes for rent in Kingwood, TX.
Will You Purchase Landlord Insurance?
If you’re renting out a home, you may think that your homeowners insurance is enough to cover the property. However, once a property is no longer occupied by its owner, this type of insurance can no longer be applied to it. This is where a good landlord insurance policy can come in handy. The right policy will provide coverage for property damage, lost rental income and tenant injury. Furthermore, your tenants should be encouraged to purchase their own individual renter policies.
What Kind of Shape is the Property in?
Virtually every property you look at is going to have some degree of pre-existing damage. If the problems you come across can be fixed in a timely and cost-effective manner, the property may still be worth purchasing. In fact, you may even want to consider requesting that certain repair costs be deducted from the sale price. However, if the cost of repairing pre-existing damage meets or exceeds the cost of the property, it’s generally a good idea to walk away.
Of course, this isn’t to say that the presence of preexisting damage is always readily apparent. For example, certain electrical, plumbing and structural issues are unlikely to be noticeable by someone doing a quick walkthrough. With this in mind, have all prospective properties thoroughly inspected by seasoned plumbers, electricians and building inspectors. While this step may strike you as cumbersome, it’s certainly preferable to inadvertently investing in a rental property that’s plagued by pre-existing damage.
Are You Properly Screening Prospective Renters?
Even the most desirable rental property is essentially worthless without responsible tenants. However, as any experienced landlord can tell you, not all renters are equally reliable. Although some applicants are able to talk a big game and present themselves well over the phone and/or in person, such individuals don’t always make the best tenants. To help ensure that you don’t get duped by prospective renters, make a point of thoroughly screening every application you receive.
For starters, try to avoid renting to applicants with horrible credit. If they’re unable to keep up with other bills, this doesn’t bode well for their ability to pay rent on time. Secondly, limit yourself to applicants with steady employment or steady income streams. Lastly, no matter how convincingly an applicant is able to sell themselves, contact each of the references they provide.
It’s easy to see why so many people are eager to invest in rental properties. After all, if you’ve always been a tenant and never a landlord, the latter is liable to seem like the ideal role, and you’d be hard-pressed to find someone who’d pass up the opportunity to sit back as passive income rolls in. Of course, as anyone who’s owned rental properties can attest, this is a gross oversimplification – and investing in your property with the wrong mindset can cost you big. So, before committing to purchase your first property, consider the factors discussed above.
Source: Realty Biz News
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