Before you decide to buy properties to rent make sure you know how to avoid mistakes real estate investors make as landlords. These mistakes can not only be the source of daily headaches for as long as you own the properties, but they can also destroy you financially.
What are these mistakes and how can you recognize them before you make them? Here’s how….
Mistake #1 Buying Bad Investments
First of all a bad investment is subjective. It depends on the type of investing you’re doing. If you’re a flipper, a condemned sign on the front door can be like a badge of honor. You can usually buy these properties cheaply and with a little work bring them up to code and sell them quickly to rehabbers.
If you’d rather pick up a property at a decent price and then rent it to generate regular cash flow with residual income, then unless you’d like to start from scratch, you’ll be looking for something else. Your money is made or lost when you buy that rental property.
A bad investment is one you can’t make sense of from the get-go. If making the numbers work on paper doesn’t seem to be happening, move on to the next opportunity. It’s better to walk away from the deal. There is nothing worse than a negative cash-flow property. A bad investment is one that sucks you dry month after month.
Be sure that you set yourself up for success from the beginning. As long as you’ve rented to the right kind of tenants, the rest of your experience should go a little more smoothly than if you entered into the experience blindly.
Mistake #2 Unnecessary Upgrades
You’ll probably be really excited when you buy your first investment property. You might be tempted to make it the best looking house on the block. There’s nothing wrong with making repairs and aesthetic improvements, but you need to know when to stop.
Landscaping, upgrading the interior, and doing even light remodeling might seem like a good idea at the time, but a few years down the road you might come to realize that this was a waste of money. First of all, just because your house looks the nicest doesn’t mean the upgrades you make will bring in more income. The rent the property brings in is controlled mostly by market conditions. The square footage of the property is more important than the rose bushes and petunias you plant.
Your property should be up to code. It should provide a safe environment for your tenants and have a fresh coat of paint. Don’t make the mistake of dumping money into it as if you were going to live there.
Mistake #3 Underestimating Repairs and Maintenance
As a landlord, always assume there will be a few costly repairs every year. This is a given with all homes. Furnaces and air conditioners break. Plumbing issues arise, and depending on how old your home is, you can expect this with some frequency. Don’t rent your property assuming repairs will be minimal. They usually won’t be!
When something goes wrong, you have a legal obligation to your tenant to fix certain things. You need to make sure you can do it timely. Set aside an account so when something breaks you can afford to fix it.
There are more mistakes landlords can make but these three hit you right where it hurts—the wallet! Be sure that you set yourself up for success from the beginning. As long as you’ve rented to the right kind of tenants, the rest of your experience should go a little more smoothly than if you entered into the experience blindly.