As any experienced real estate investor will tell you, not all rental properties are guaranteed to turn a profit. In fact, depending on the condition of the property, its location and various other factors, your first rental may prove to be among the worst investments you ever make. So, if you’re currently shopping around a profitable rental, it’s imperative that you do your research and put in sufficient effort. As you’ll find, a little bit of discernment on your part can go a long way towards ensuring a sound investment.
Learn Everything You Can About the Property
When purchasing a rental property, it’s only natural that you’d want to know exactly what your capital is going towards. In addition to doing detailed personal walkthroughs of the property, this will require you to enlist the aid of a certified inspector. This person will meticulously inspect the property and document any issues they come across. As you’re likely to find, certain problems are often missed by people outside of this field.
As an investor, a formal inspection can help you out in a number of areas. To start with, you may not be able to buy insurance for a property that hasn’t undergone a professional inspection. Secondly, the results of the inspection can help give you a good idea of what the property is truly worth and guide any offers you put forth. Furthermore, if an inspection reveals a host of large-scale, costly problems, you’ll be able to walk away from the property without an inkling of regret.
Commit to Screening All Rental Applicants
Regardless of how nice your rental property is or where it’s located, it’s unlikely to make you much money in the absence of tenants who are willing and able to pay rent. Furthermore, in certain areas, evicting tenants for nonpayment of rent can be a lengthy and vexing process. Luckily, you can save yourself a fair amount of hassle by committing to screen every person who submits a rental application.
No matter how good a first impression a rental applicant makes, it’s important that there not be any exceptions to this rule. So, after obtaining permission from an applicant, confirm that they have sufficient monthly income, look into their criminal background and contact any references they list. Additionally, when it comes to references, you may find that employers and landlords are more likely to provide accurate assessments than friends and family members. It’s also worth noting that many people list references with the assumption that landlords won’t get in touch with them. So, if you’re looking to thwart the efforts of dishonest applicants, contacting references can be an effective way to do so.
If you don’t have the time to personally screen each applicant, consider working with a reliable screening service. While this will cost a little money, it will also save you quite a bit of time. Needless to say, this can be a boon to landlords who are swamped with applicants or have day jobs that are unrelated to property management. Alternatively, if you employ a dedicated property manager, delegating the screening process to them can be another great way to free up time.
Carefully Consider Operating Costs
When determining whether a rental property is a worthwhile investment, take some time to calculate and consider operating costs. Unsurprisingly, these costs can be particularly high when it comes to large multi-family rentals, like apartment buildings and condo complexes. In such instances, you’ll need to factor the salaries of maintenance staff and property managers you intend to hire into your calculations. Ideally, the cost of maintaining the property won’t exceed the amount of rental income you take in each month. Additionally, when weighing operating costs against monthly profits, take care to employ the one percent rule in real estate.
While good rental properties can net you large amounts of passive income, bad ones can act as a consistent drain on your resources. As such, anyone who will soon be investing in their first rental should exercise discernment when seeking out the right property and put their best foot forward with regard to managing that property. So, if you’re looking to ensure that your freshman foray into rental property ownership proves profitable, heed the pointers discussed above.