Not every rental property investment is a guaranteed moneymaker. In fact, certain properties are unlikely to ever generate a healthy return on investment. That being the case, all first-time investors should make an effort to avoid sinking resources into properties of this type. While there are no guarantees in the rental property game, there is a vast difference between a smart investment and one that’s likely to lose you money. So, to help ensure that your first foray into rental property ownership doesn’t end with a case of buyer’s remorse, avoid making the following mistakes.
Purchasing a Fixer-Upper as Your First Property
It’s easy to see why so many property investors are fond of fixer-uppers – they’re comparatively inexpensive. And depending on the location of the property, they stand to generate a healthy return on investment once they’ve been fixed up. However, while a fixer-upper may represent a sound purchase for an experienced investor, it’s unlikely to be a profitable venture for a first-timer.
If you’ve never attempted to renovate a rental property, you’re likely to find yourself shocked by the many steps and expenditures involved with such an undertaking. Furthermore, if you have little to no experience working with local contractors, you may have a difficult time finding the right people for the job. After you’ve overseen smaller-scale repairs and renovations on other rental properties, tackling a fixer-upper may be more feasible, but if this is your very first foray into property investment, you’d be wise to go with something that’s more intact.
Failing to Research the Local Real Estate Market
Before purchasing a rental property, it is imperative that you do some research into the area’s real estate market. For example, what are similar rental properties selling for in this area? Additionally, what are the rental rates like here? Taking the time to familiarize yourself with the local market will provide you with a solid idea of how much you can reasonably expect to make from this investment. Property investors based out of Southern California would do well to study up on Los Angeles real estate trends.
Not Insisting on an Inspection
Although subjecting a property you’re thinking about purchasing to professional inspection may seem like a no-brainer, a surprising number of investors neglect to do so. In fact, a pre-purchase inspection may not even occur to many first-time investors. As long as they’ve done a walkthrough of the property without encountering any glaring issues, first-timers are liable to think that everything’s good. Furthermore, some sellers will actively dissuade buyers against having inspections done. In some cases, the seller may even threaten to pull out of the deal if you insist on having an inspection carried out.
Not only should you make a professional inspection a prerequisite for all of your property investments, you should walk away from sellers who aren’t amenable to inspections. Even if this isn’t their intent, this type of attitude gives off the impression that they’re trying to conceal problems with the property. So, no matter how badly you want a certain deal to go through, you should never acquiesce to a seller who is vehemently opposed to an inspection.
Taking a “Gut Feeling” Approach to Rental Applicants
First-time landlords are often unaware of just how much money bad tenants stand to lose them. In addition to causing damage to the property, some tenants simply refuse to keep up with rent payments. Furthermore, evicting a bad tenant can be a long and costly process.
This is why it’s important to avoid adopting a “gut feeling” approach when processing rental applications. Instead, with each applicant’s permission, run a credit check and a criminal background check. Next, confirm that they have enough income to comfortably afford the rent and get in touch with the references they provide. This screening process may take a bit of time, but it will drastically diminish your chances of getting stuck with bad tenants.
When investing in a rental property, it’s only natural that you’d expect a sizable return on your investment. And while certain properties can prove quite profitable, others wind up losing their respective owners far more money than they ever stood to make them. As such, it is imperative that first-time investors take active measures to prevent themselves from purchasing properties that are likely to cause buyer’s remorse.