Investing in real estate and watching your income grow seems like a dream come true to many. It’s no wonder either; many of the world’s wealthiest people built their fortune on real estate, and there are no reasons that this shouldn’t work for the rest of us who are also dreaming about financial independence.
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Leaning back and putting your feet up as the cash flows in is, unfortunately, not how it always goes down. There are a ton of pitfalls to avoid if you’re considering to become a landlord – and thoroughly researching these is just the beginning. Here is a handful of the most sensible advice out there, straight from other property owners who have stumbled and gotten back up; avoid these mistakes, and you’re going to save yourself from several stressful weeks.
The Property: Find the most suitable one
Before you invest in a rental property, you should know what kind of tenants you’re looking for. A small family wouldn’t think twice about renting a place that’s far away from schools, kindergartens, grocery shops, and playgrounds; a single guy in his mid-twenties would probably prefer to live close where it’s happening and a pub or two.
Investigate the neighborhood before you consider any of the homes for sale. A sketchy street might scare away all the decent tenants and is likely to attract less reliable ones – but this isn’t always the case, and you can find excellent tenants in less up-market neighborhoods too. Just remember to follow the screening process below to ensure you find a reliable and friendly tenant to take care of your property.
You should do a bit of research before making a final decision as you want to avoid the attack of an increase in property tax; a rental home in a classy neighborhood is likely to have a high property tax on it. This might not be a bad thing, though, as those looking to live in this kind of area often are long-term letters. Talk to other homeowners in the neighborhood or contact the town’s assessment office for every detail on property tax.
The location of your property is also going to affect the cost of your insurance, by the way. An area that is prone to natural disasters, such as earthquakes, needs a more comprehensive insurance so remember to deduct this from your expenses as well.
The Property: Does it need to be fixed?
Investment property is there to generate an income for you – and you should see it as a part-time job from the moment you’ve purchased it. From now on, you’re going to play the role of a handyman and should know your way around a toolbox, to put it like that. Sure, you can hire someone to fix it for you, just remember to make a note of the extra expenses and keep in mind that some of these problems will occur repeatedly.
Do you want to call for someone whenever a toilet needs unclogging or are you willing to pull up your sleeves and do it yourself? Hiring someone every time your tenants call with a problem is going to eat up your income, so if you’re not prepared to get dirty, you might want to reconsider the role as a landlord.
The Tenants: Find the right one
When it comes to judging people, we tend to believe we’re quite alright. Although your gut feeling can steer you in the right direction, you need to prepare a set of questions in order to find the most suitable tenant for your investment property. Sadly, a bad tenant can do more damage than paying rent a bit late or even withholding it all together – let’s face it; people can do a lot of damage. You’d want to find the ones who will look after your property as if it was their home – which it also happens to be.
The damage some people can do will cost you far more than the deposit they left behind – and believe me, people like this are able to disappear all of the sudden and leave you with a catastrophe of a mess.
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The Screening Process
Make sure you get the basic screening over with first when you’re considering a potential tenant. This process should be a bit more detailed than your goodwill feels comfortable with, though; background checks need to include both their credit as well as statements from previous landlords.
A quick phone call to the one they’re currently renting from or just moved out from is able to save you amounts of sleepless nights. Ask her about their payment behavior, if she ever received any complaints from their neighbors, as well as the condition of the property when they moved out. You want a responsible and friendly tenant, and nobody’s able to tell you as much as their former landlord can.
It’s a good idea, by the way, to rent out to couples if you want someone to stay there for a long time and be quite, decent people. A group of students is sure to make a mess out of everything, it’s almost self-explanatory – but don’t shy away from young tenants if they want to rent alone or as a couple. Consider their appearance when they come to view your property; are they on time, groomed, and polite?
Steer away from latecomers who don’t give notice, as well as rude or strange behavior – we want clean and polite tenants. The type that will make a flower garden of those dried-out patches of grass, who takes pride in decorating the house for the holidays, and greeting the neighbors; we want these to stay around for years.
Good tenants are really worth their weight in gold and you should hold on tightly when you first find one. They are the ones enabling you to make a living off this property, at the end of the day, and could make your investment career a dream come true or a living nightmare.