It’s no secret that rental property investments can be highly profitable. In fact, certain investments can generate so much passive income that you’ll be able to comfortably quit your day job. Still, this doesn’t mean that every rental property is guaranteed to turn a healthy profit. As any regretful investor can attest, failing to do your homework in advance of purchasing a property can result in considerable buyer’s remorse. In the interest of avoiding such an outcome, put the following tips to good use.
Subject the Property to Thorough Inspections
Under no circumstances should you invest in a rental property that hasn’t undergone thorough inspections. In fact, if a seller ever expects you to purchase a property sight unseen, this should be taken as a red flag, regardless of how great a deal they’re willing to give you. Furthermore, while looking at images of a property can help familiarize you with its general layout and aesthetics, purchasing a rental property that you haven’t seen in person is extremely ill-advised.
Not only should the property be inspected by you personally, it should also be carefully inspected by experienced electricians, plumbers and building inspectors. After all, not all problems are immediately apparent to nonprofessionals. While these inspections are likely to cost a little bit of money, the amount of money they stand to save you in the long run more than makes up for any short-term expense. Furthermore, if any of the inspections reveal problems of which the owner was hitherto unaware, this may put you in a good position to request a reduction in price.
Carefully Calculate the Cost of Repairs and Renovations
While some of the properties you’ll come across have been meticulously maintained, others will leave a lot to be desired in this respect. So, if you come across a property that’s rife with problems, you should carefully consider how much the necessary repairs and/or renovations are going to run you. For example, if a poorly maintained property located in a low-demand area requires significant repairs, you’d do well to walk away from the deal. If the rent prices in this area are fairly low, there’s a good chance you won’t make back the money spent on fixing the place up. Conversely, a fixer-upper in a desirable, in-demand area may be worth your time and resources. However, keep in mind that it may take quite some time before you see a return on your investment.
Research the Property’s Location
When considering the question “Why invest in rental property?,” one of the biggest answers you’re likely to find is “location.” In fact, in many respects, the location of a rental property is more important than the property itself. For instance, many prospective tenants will be willing to overlook a lack of space or the absence of certain amenities with properties that are located in high-demand areas. On the flipside, you’re liable to have trouble commanding high rents for well-maintained, amenity-rich properties located in areas with waning demand. With this in mind, make sure to thoroughly research any area in which you’d like to purchase rental properties.
Don’t Take on High-Risk Tenants
Even the most desirable rental property isn’t going to make you much money in the absence of responsible tenants. This is why it’s important to properly screen all rental applicants instead of simply going with your gut. No matter how good a job an applicant does of presenting themselves over the phone or in person, take care to contact their references, run credit checks and confirm that they have enough income to comfortably afford rent. Additionally, since homeowners insurance can’t be applied to rental properties, make sure to purchase landlord insurance and advise all of your tenants to invest in renters insurance.
Although rental property investments stand to make you a lot of money, they require a fairly large financial commitment. Considering how much capital goes into the average rental property, it’s only natural that investors would seek to minimize their chances of buyer’s remorse. While there’s no way to completely remove risks from the equation, there are a number of steps you can take to decrease your odds of purchasing a lemon of a property. Property investors looking to avoid regret will be well-served by the measures discussed above.
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