Investing in rental properties is far from an inexpensive venture. Although the right properties can prove immensely profitable, the wrong ones are often money pits that drain the finances of their respective owners. As such, it stands to reason that anyone looking to invest in their first rental property would seek to maximize their chances of success. To help ensure that your first rental property doesn’t become an investment you deeply regret, put the following tips to good use.
Don’t Limit Your Scope
Limiting potential investments to rental properties in your local area may prove tremendously detrimental to your financial bottom line. For example, if you reside in an area with low housing demand and/or low rental rates, you’re liable to see a minimal ROI on any property investments. So, if your current locale leaves much to be desired on the rental property front, you’d do well to expand your scope a bit.
Branching out and looking for investment opportunities in other areas can help you maximize profits and set the stage for long-term gains. If you’re unclear on how to determine which areas contain the best rental property investment opportunities, reach out to a real estate investment company. This will help bring you up to speed on the kinds of areas renters find most attractive and teach you a lot about investing in real estate online.
Screen Each Rental Applicant
The desire to fill vacancies as quickly as possible is certainly understandable. After all, a unit can’t make you any money if no one’s living in it. However, being hasty in your decision making and failing to properly screen each rental applicant can have serious financial consequences. If you become stuck with a tenant who’s unable or unwilling to keep up with rent payments, you’re liable to have a very hard time evicting them. Depending on where you’re based, the eviction process can take months – if not longer. And the longer a non-paying tenant is occupying a unit, the more capital you stand to lose.
With this in mind, make sure to put each rental application you receive through a rigorous screening process. With each applicant’s permission, take care to run credit checks, background checks and reference checks. You should also confirm that applicants are able to comfortably afford rent and have consistent sources of income. Many landlords require applicants to make three times the cost of rent each month, as this is a good indication that they’ll be able to stay current with monthly rental payments.
When it comes to background checks, it’s important to remember that past criminal convictions shouldn’t necessarily preclude someone from being able to find housing. However, if an applicant has been convicted of crimes that may present a danger to other renters or the property itself, this may not be a gamble you wish to make.
Be Responsive to the Concerns of Your Tenants
Now matter how much work you put into maintaining a rental property or how desirable an area it’s located in, it’s essentially worthless in the absence of satisfied tenants. As such, first-time landlords would be wise to treat tenant concerns with due importance and make themselves readily available to their renters.
If you’re unable to address maintenance requests, noise complaints and other tenant grievances in a sufficiently timely manner, it’s in your best interest to enlist the aid of a certified property inspector. This person will take point on any and all aspects of property management, including tenant interaction, maintenance delegation and rent collection. Although you’ll still have final say over all decisions, you’ll be able to trust an experienced property manager to make the right choices in your absence. Working with a property manager is strongly recommended for landlords who have multiple properties to manage or those who don’t wish to turn rental property management into their full-time occupation.
As is the case with other investments, success is by no means guaranteed when purchasing your first rental property. And while it’s true that rental property ownership is a great way to generate passive income, this doesn’t mean that landlords don’t have to put in work in order to make their properties profitable. Luckily, maximizing your odds of success with your first rental property should be well within your abilities – particularly if you make good use of the tips discussed above.