Mistakes to avoid with rental properties
Investing in rental properties can be a great way to generate additional income. In fact, for some people, owning rental properties can facilitate enough passive income to warrant quitting their regular jobs. However, if you’re new to rental properties, there are a number of rookie mistakes that you should actively work to avoid. Although this is supposed to be a money-making venture, rental property investment ultimately stands to lose you money in the absence of the proper precautions. As such, anyone thinking about using rental properties to generate income should steer clear of the following blunders.
Not properly vetting properties
As a landlord, you’re on the hook for any problems that tenants encounter on your properties. Depending on the nature of these problems, the solutions can range from quick fixes to costly, time-consuming repairs. That being the case, you’d be wise to properly vet every property you’re thinking about investing in. This means thoroughly inspecting the foundation, wiring, plumbing and various other components – and enlisting the aid of the proper professionals. In addition to being stressful for both landlords and tenants, property issues that are discovered too late can cause tremendous financial hardship. Not only will you be responsible for paying to fix certain issues, you may even find yourself on the receiving end of a lawsuit. As such, make a point of never investing in a property that hasn’t been meticulously vetted by seasoned pros.
Unfamiliarity with fair housing laws
Unfamiliarity with fair housing and anti-discrimination laws also stands to land you in quite a bit of trouble. So, before you start accepting applications from tenants, take care to brush up on the aforementioned laws. For starters, fair housing laws provide equal access to housing and ensure that property owners can’t discriminate against applicants on the basis of sex, race, disability and various other factors. Furthermore, many state and local governments enforce additional protections that every property owner should familiarize themselves with.
Failure to plan for maintenance expenses
Even if one of your properties is in pristine condition, the occasional maintenance issue is bound to arise. Maintenance problems are an inescapable part of property ownership, and you’d do well to constantly have sufficient funds set aside for them. Many property issues occur suddenly and without warning and require immediate – or near-immediate – attention. In fact, allowing certain issues to linger can cause significant damage to the property, thereby facilitating even higher repair costs. That being the case, make sure you always have a healthy sum in your maintenance fund, regardless of how well-kept your properties are.
Not planning for vacant periods
As landlords in areas that aren’t in-demand will tell you, it’s folly to simply assume that a property will be rented at all times. There are a variety of reasons for which properties remain vacant for long periods, including economic downturn, non-competitive rental rates and areas becoming less popular. Even if your properties are located in highly desirable areas, you may find yourself dealing with vacancies for which there are no clear explanations.
The big question here is whether you’ll be able to afford the mortgage and upkeep on a property that remains vacant for an extended period. If the answer is no, you may want to think twice before investing in the property in the first place. This is one of the key things to keep in mind when learning how to invest in real estate.
Not properly vetting tenants
Tenants who consistently fail to pay their rent on time can be a drain on your finances, and depending on where the property is based, evicting delinquent tenants can be a costly and arduous process. One way to avoid such situations is properly vetting all prospective tenants. For example, if an applicant is shown to have a history of evictions or less-than-timely rent payments, it’s probably a good idea to move on to the next application.
Investing in rental properties can be a very lucrative venture. Unsurprisingly, the idea of sitting back and letting your investments generate income is simply too appealing for many people to pass up. However, while being a landlord may provide you with passive income, this isn’t to say that this is a hands-off process. While owning rental properties is a comparatively low-stress occupation, landlords still have their fair share of responsibilities to tend to – and becoming one without a firm understanding of these responsibilities is likely to have undesirable consequences.