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Common mistakes when buying Rental properties

Mistake 1: A cheap deal is not a good deal – Yes, it is true that you can buy properties for very low or “bargain “prices, but that does not mean that you can rent them out and be profitable.  Investing in a better quality home in a desirable area will provide better cash flow, shorter vacancy and a higher return. It will be less likely to give you problems later on as well. You will not know what a good deal is unless you invest some time in education first. Learn about the area, the rental market, school districts and crime rates for better discernment.

Mistake 2: Forgetting “time is money” – Don’t forget, if your house is vacant and sitting on the market, you are losing money!! There are few ways to deal with it a) accept lower rent than anticipated b) Hire a property management firm for marketing and screening tenants. Lost time is your worst enemy, not just in real estate but in any industry; avoid buying properties that require too much maintenance and expenses to be “rent ready” and do your due diligence in picking the right area or neighborhood.

Mistake 3: Underestimating repair costs – Often, the up-keeping of a house is over-looked and snowballs into exorbitant amount where the investor suddenly falls into a negative cash flow. Wear and tear repairs like carpeting cleaning, painting are very common with rentals, but you might be encountered with unexpected repairs such as mold under a bath tub or replacing a hot water heater that can be more expensive than anticipated. It is always wise to set aside some money for major repairs just in case they are required. Typically it is advised to have 6 month’s rent saved on the side.

Mistake 4: Assuming that it will be easy dealing with tenant issues – When you become a landlord, you pretty much become a debt collector. Don’t assume your tenants will be making timely payments, or even treating your property as their own home. It is vital that tenants are screened and all their information has been verified. How many times have we read or heard about cases where some tenants are synonymous to nightmares? In order to avoid legal procedures and a stressed out experience, talk to a property manager. By hiring a property manager and paying 8-10% of the monthly rent might be totally worth it. Select a company that is a full service company and focuses solely on management. We have also heard and seen examples of poor management where the primary purpose of the company is not management, and might be selling real estate. Avoid dealing with those kinds of companies, after all time is money and wasted time is an expense for you.

Mistake 5: Not carefully inspecting the property – Although you are buying an investment property, and will not be using it as a primary residence; it is important to know that you are also buying the plumbing, the electrical, the roof, the land it sits on and everything else with your purchase. The easiest way to prevent surprise, major expenses is to spend some time and money into inspecting the property before you buy it. This will help you in avoiding big expenses later and also give you some peace of mind and security of getting involved with a decent property.

Mistakes are our way of learning, and it is ok to make mistakes once in a while but in order to prevent your investment property turning into a headache, and guarantee positive cash flow and equity – avoid making these common mistakes and learn from other people’s experiences.

 

 

 

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