The right rental property can be a highly profitable venture that serves as a lasting source of passive income. Still, this doesn’t mean that one rental property is as good as the next. Fledgling investors looking to get the most out of their first rental will need to do their homework, put in the legwork and avoid a wide assortment of rookie mistakes. So, if you’re hoping to ensure maximum profitability, be mindful of the following blunders when purchasing your first rental property.
Limiting Yourself to Minimally Profitable Areas
It’s no stretch of the imagination to call location the single most important factor in real estate. After all, an amenity-rich property in a low-demand area is practically guaranteed to generate lower returns that an amenity-light property in a high-demand area. That being the case, limiting your scope of investment to your local area may not be the wisest course of action, particularly if the area in question has low property values, rental rates and demand for housing. So, if your current locale fits this description, expanding your scope may pay off in a big way. Anyone who’s curious about how to invest in property out of state is urged to get in touch with a highly-rated real estate investment company and/or consult the bevy of online resources on the subject.
Before proceeding to make an offer on any rental, it’s imperative that you do some research into its location. For instance, you’ll need to do a deep dive into local property values, rent prices and demand for housing. In addition to helping you determine whether a certain property represents a safe investment, this will give you a solid idea of what the property is truly worth and prevent you from overpaying.
Under no circumstances should you forgo professional inspections when purchasing a rental property. For one thing, seasoned property inspectors will make you aware of any and all issues with a potential purchase, which can ensure that you’re able to make an educated decision. No matter how detailed a personal walkthrough you’ve done, there are problems – both obvious and not-so-obvious – that non-professionals are highly unlikely to recognize. Secondly, you may not be able to get the property insured in the absence of professional inspections. Furthermore, the results of these inspections will help you understand how much work a property requires. As any experienced investor can attest, discovering that a property has outstanding issues and requires sweeping repairs/renovations long after a purchase has gone through is the absolute last thing you want.
When it comes to prepurchase inspections, you have nothing to lose as the buyer. These inspections will educate and inform you, and based on what they uncover, you may be well within your rights to reduce any outstanding offers. So, no matter how meticulously-maintained a property appears to be on the surface or how convincing a seller is, you should never forgo professional inspections, and sellers who are adamant in their opposition to them should always be regarded with suspicion.
Working with Unlicensed Contractors
When carrying out necessary repairs or renovations on a rental property, you may find yourself tempted to work with unlicensed contractors. Since their rates tend to be lower than those of licensed contractors, hiring them is liable to seem like a financially savvy cost-cutting measure. However, as you’re likely to discover, working with unlicensed contractors can ultimately lose you more than you ever stood to save.
Unlike their licensed contemporaries, unlicensed contractors have very little incentive to see jobs through to the end, guarantee their work or conduct themselves in a professional manner. Furthermore, since most of them lack insurance, you may find yourself having to pay the medical costs for any injuries they incur while working on your property.
Investing in a rental property can be a great way to generate passive income on a monthly basis. However, while a good rental stands to rake in consistent profits, a bad one is liable to wind up costing you a lot more than it stands to make you. That being the case, it’s important to remember that some rental properties represent much safer investments than others. First-time investors who want to avoid getting stuck with a lemon should steer clear of the missteps discussed above.