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Home Real Deal — Buy Or Sell With Confidence
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5 Mistakes To Avoid When Buying Rental Property

July 24, 2020

Saving and investing money is a necessity for most people. Doing so is one of the best ways to assure a fiscal cushion in case of emergencies and help provide for a comfortable retirement. When saving money, it is important to carefully consider where to place one’s savings. Ideally, any chosen investments should allow you meet your long-term fiscal goals such as beating inflation. Any investments you choose should also allow you to grow your capital and expand your finances without incurring risks that you find unacceptable.

One of the best places to invest money is through buying rental property. Rental property is a house or apartment that people buy with the intention of renting it out to others and earning a return on their investment. Investing in real estate has many advantages. A properly maintained rental home or homes can help provide the person investing with a steady and reliable stream of income over a long period of time. Buying rental property traditionally offers a steady and reliable form of income that can be tapped into each month.

Unfortunately, sometimes investors make mistakes when buying rental property. If you are considering doing so, here are some common mistakes you will wish to avoid during the process.

1) Investing Based on Appreciation
People often mistakenly invest in rental property based on the idea that it will appreciate or gain in value in the coming years. This is not a good idea. Rental property values can fluctuate from year to year. A house may lose value in a down market. An investor may need to unexpectedly sell their property. Doing so in bad market can lead to a loss. Instead investors should always invest based on the cash flow of the property. This is why it is important to have firm numbers at your fingertips during the investigation process and when buying rental property that you intend to keep in your investment portfolio. The seller should be able to provide you with at least a year’s worth of verified rental numbers in writing when you are investigating any property you want to think about buying.

2) Missing Items in Contracts
Always get all your assumptions in contracts when buying rental property and read them thoroughly. Buying real estate requires the person doing so to sign multiple contracts. Each contract and real estate partnership agreement should be read carefully before you sign it. Make sure the contract has all necessary clauses before you sign it. A missing item can be costly to fix. You may need to hire a lawyer afterwards to fix the problem. It is best to get the contract exactly as you want before you sign it. If possible, hire a lawyer to help you during this process.

3) Hiring Third Party Real Property Management
Managing a property is an important aspect of buying rental property. A property needs to stay in good shape if it is to be attractive to potential renters and retain value long-term. A property also needs to be properly managed once you have renters living there. Very often the owner of the property must respond to problems with the property such as plumbing leaks as soon as possible. If the problems are not addressed quickly, more expensive problems may result. In that case, a reliable and efficient management company is vitally essential. Always work with in-house property management so that the person selling you the investment is also responsible for its performance. An outside property management company can be both costly and unreliable. They may also not know the area well or understand all aspects of property maintenance. It is best to work with someone who knows the property in and out. An in-house management company can do this for you best. Make sure they agree to manage the property during the buying process. Don’t forget to cross-check any claims made by your property manager with Rent Fax Pro, an objective risk analyzer and rent estimator.

4) Improper Insurance
Insurance is vitally important when investing in rental property. The right insurance can help make sure your investment is protected in case of bad weather conditions such as flooding or heavy snow. Failing to buy enough insurance or purchasing insurance that is not tailored to your needs is one of the most common mistakes that buyers often make. Insurance should be carefully considered when buying rental property along with other factors. Any insurance policy should take into account multiple factors that are specific to your situation including your personal fiscal situation as well as where the property is located. The insurance policy should also be part of any insurance policies that have been purchased including life insurance. The right insurance policy plan can protect your investment during your lifetime as well as for your heirs.

5) Buying Too Many Properties
If you are a novice investor, it is important to avoid buying too many properties at once. Consider buying one property initially to get a feel for the business. Buying a home is different than buying a rental property. Even if you have purchased your first home, the experience of doing so will be vastly different than buying property for investment purposes. In most cases, it is best by far to buy a single property initially. Doing so will let you get a good idea of what is involved in the process. If possible, wait at least a year before buying any additional properties. This gives you time to understand all aspects of owning and rental property of your own. A long time frame for this process allows you to work through any potential problems that may crop up. Look at your first rental property as an opportunity to experience the business of property ownership and get a better understanding of it.

Owning a rental property can be an excellent way of accomplishing many of your fiscal goals. Rental property can provide a highly stable income that has tax advantages for the owner. Proper research is essential during the process. Investigate carefully and avoid these common mistakes. In turn, you may expect to have an investment that can help provide the basis for a comfortable financial future.

 

This article was written by: Hunter Thompson