Three Mistakes To Avoid When Investing In A Rental Property

Posted on: 28 July 2017

Investing in real estate rental properties is a great way to build up an income stream outside of your day job. Most beginners begin with one or two properties, then slowly increase their investments over time. If you are thinking about getting into the rental trade, make sure you are aware of the following mistakes so that you can avoid them.

#1: Underestimating repair costs

A cost effective way to purchase your first property is to buy one that has a few repair needs, then fix it up and rent it. This is because these properties often sell at a discount. This becomes a problem if you underestimate the cost or time involved in repairing the property. A great way to avoid this issue is to foster a relationship with a trustworthy general contractor. They can look over any properties your area considering and help you determine the repair costs necessary. You may even be able to secure this service if you plan to do the work on your own, as some contractors will provide this service for a small consultation fee.

#2: Overlooking the location

Location matters even with a rental. A prime rental location will be near basic services, like grocery stores and bus routes. Next, consider your likely tenants. If you want to attract families, parks, libraries, and decent schools should also be nearby. For a target audience of young professionals, commuter routes, gyms, and night life locations are a bonus. Students need to be near campus as well as close to basic services, since many do not have cars and they prefer a walkable location. Rentals in well tended, low crime neighborhoods also easier to rent out, so pay attention to the neighbors when looking at properties.

#3: Ignoring the market

Just because a property is a good deal doesn't mean that it makes a good rental. Sometimes you will come across a home that is priced below market value. This may be an excellent deal for someone looking to live in the home, but depending on location and other factors, the amount you can expect to recoup in monthly rent payments may not be enough to cover the mortgage with sufficient profit. When looking at a property, pay attention to the average rent amounts for similar properties, as well as how often they turn over. Then, figure in your mortgage and upkeep fees along with how many weeks you expect the property to sit empty between tenants annually. This way you can have a good idea of a reasonable market value for the houses you look at.

For more help, contact a broker in your area.

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