If you’re currently in the market for your first rental property, odds are you’re looking to generate a healthy amount of passive income. While it’s true that a nice property in an in-demand area stands to rake in a small fortune every month, this shouldn’t be taken to mean that every rental property will produce a healthy ROI. Furthermore, without even meaning to, many first-time investors severely limit the profitability of their rentals. To help ensure that such a fate doesn’t befall your first rental property investment, take care to avoid the following blunders.
Purchasing Properties in Unprofitable Areas
When seeking out potential investment properties, you should never regard location as unimportant. No matter how much a property has to offer, its location has the power to make or break its ability to generate rental income. As such, there’s little wonder as to why so many investors place more importance on location than the general condition of properties. While this isn’t to say that location is the only factor you should take into account, a good location should be high atop your list of criteria when shopping around for your first rental.
As a general rule of thumb, you should try to avoid purchasing rental properties in areas with little demand for housing. After all, if no one’s looking to move to a certain area, it stands to reason that local rental rates and property values are going to be extremely low. Instead, focus your attention on areas that have booming populations, strong local economies, robust growth projections and abundant demand for housing. While properties in such areas are liable to prove a bit more costly than properties found in less profitable locales, they also stand to generate much larger returns. Furthermore, if you’re unclear on the best cities to invest in real estate in, don’t hesitate to get in touch with a highly-rated real estate investment company.
Being an Unreliable Landlord
As any longtime landlord can attest, there’s a lot more to this job than collecting rent checks every month. Reviewing rental applications, addressing tenant grievances and managing maintenance staff are just a few of the tasks many landlords deal with on a daily basis. So, if you’ve never managed a rental property, it’s strongly recommended that you brush up on the qualities of a dependable landlord. Stepping into this role unprepared is liable to create a number of headaches for you, your tenants and any staff you employ.
Needless to say, if you develop a reputation for shrugging off maintenance requests, treating tenants with disrespect or making yourself impossible to reach, you’re going to have trouble retaining your current tenants and finding new ones. Furthermore, adopting such a lackadaisical approach to property ownership is liable to result in copious negative feedback, which can cause tremendous damage to your professional reputation. That being the case, it’s imperative that you make yourself reachable during business hours, show renters the utmost respect and promptly address maintenance requests and assorted tenant grievances.
Taking on Unreliable Tenants
Even the most desirable rental properties need dependable tenants in order to stay afloat. The absence of such tenants means the absence of rental income – and the absence of rental income often means having to sell properties at a loss. With this in mind, make sure to never forgo the screening process for rental applicants. No matter how impressive an applicant seems in person or over the phone, a thorough screening process is necessary to determine how dependable they truly are.
With each applicant’s permission, you’ll need to look into their employment situation, review their credit score and get in touch with any references they list. While this may require a bit of time and effort on your part, this short-term inconvenience stands to save you a considerable amount of stress down the line.
There’s no question that rental properties can function as long-term moneymakers. In fact, a nice property in a densely-populated area with robust housing demand can generate passive income for decades. Still, this shouldn’t be taken to mean that every rental property is guaranteed to be profitable. There are a number of reasons rentals fail to generate healthy returns, many of which are within the control of property owners. So, if you’re looking for effective ways to reduce the likelihood of an unprofitable property investment, be mindful of the missteps discussed above.
