If you ever considered purchasing property, you need to know about these six important tips for new rental property investors. More so, purchasing property as an investor comes with a whole different set of dos and don’ts. Before you make the leap, do your research diligently.
New Rental Property Investors Do Your Homework!
Personally, I think purchasing real estate for investment purposes is a great idea. A rental property can be a great investment, especially in the long run. With that said, I realize that comes with a lot of responsibility, research, and risk going into a rental property as well. Additionally, buying your first home can be quite exhilarating. For many, it’s a lifelong dream to step into a place that’s finally theirs.
Plus, there’s no more paying rent, worrying about putting holes in the wall, or bouncing from place to place. You walk in the door, and the home is yours. But what about buying property for a different reason? What if you’re purchasing the property to rent it out?
You don’t have grand dreams of living there, but instead, you’re looking to nail down a “For Rent” sign in the front yard and bring in tenants. Furthermore, while it may or may not bring in the same level of excitement, there are a lot of different thoughts that are going to be swimming through your mind.
Investing in real estate is a goal of ours for sure and I have done my fair share of research into investing in real estate as well. To begin, I’m sure you’ll want to know, what some of the important strategies to follow and, do rental properties follow the same timeline that buying a home does?
Today, we’re going to run through some of the most important tips out there to help you understand what you need to know first
1 – Dream Big But Start Small!
As the saying goes, you’ve got to walk before you can crawl, right? While it’s tempting to go all-in at the first rental property you see, that might not be such a great idea. For starters, going all-in means that you’re giving a level of commitment that you may not be able to handle.
What happens if you find out rental property investing and body corporate management isn’t for you? Unfortunately, that’s too bad because now, most of your money went toward the rental property and good luck bailing out of it!
Plus, as any new investor, you will make some mistakes and real estate is not the way you want to learn from them. Moreover, you would rather learn from your mistakes from an inexpensive, single-family home instead of an entire set of apartments.
Instead, stay under budget and play the long game and make sure you have a good investment planner alongside you on the way.
2 – Quadruple Check Your Numbers
When investing in rental property, do you see this as a long-term option or are you going to flip it around and sell it again? Whatever your strategy is, you need to make sure you have solid numbers and projections of what is going to happen.
Furthermore, you need to make sure you have quotes from contractors, a projected rent income sheet, and how much everything is going to cost you from day one. This could vary depending on the type of loan or partner you work with, but make sure you know your numbers backward and forwards.
Additionally, you must work on your credit score before applying for any loan as well. The average FICO score ranges from 650-700 so you’ll want to make sure your credit score is in good standing.
Obviously, the higher your score, the better odds you’ll have when you apply for a rental property. If your credit score comes in on the low end, you will end up paying higher interest rates. Of course, you’ll want to avoid that.
Typically, a credit score of 750 or higher will qualify you for a better interest rate for the rental property and keep you in good standing with the bank or loan company as well.
3 – Make Sure You Budget For Greater Expenses For Your Rental Property
Ideally, always expect the unexpected especially when it comes to your rental property. Even though things seem to line up perfectly, something drastic could happen. This means you’ll end up paying extra for some cost that didn’t cross your mind when you purchased your rental property.
When investing in property, go ahead and build those unexpected crises into your budget. Call it a rainy-day fund, an emergency fund, or an Oh No! fund! Whatever you call it, just make sure you have extra funds handy.
In addition, fixing mold under the sink could learn to a whole host of plumbing issues which could lead to unexpected financial expenses. When you decide to purchase any rental property, always be ready for additional expenses. After all, you know eventually, some repair or upkeep will need your attention.
4 – Take Your New Rental Property Seriously
Once you decide to purchase your rental property, you will discover you are much more than a property owner. In your new role, you will not only oversee the work and collecting rents – it’s much more than that.
Indeed, you are a landlord and much more than that. Get ready to see yourself as a handyman, accountant, marketer, networker, gardener, and everything else in between.
Once you decide to own a rental property, the responsibilities seem endless. It’s also important to remember your landlord tenants’ rights. Always follow the proper guidelines when renting your property.
More importantly, first and foremost, you must provide a livable, safe, and clean space for your renters. With your new tenant/landlord relationship comes rights and responsibilities for both parties.
First, you must make sure you check all of the proper guidelines before you decide to be a landlord.
5 – Always Be Mindful Of Tenants
Of course, you must use your head not your heart when choosing a tenant. Never choose the easy route when deciding on a tenant. Remember, your rental property is a business. You must treat it as such.
More so, it’s important to make sure and screen your tenants ahead of time. Make sure you’re looking at their credit history as well as their current job situation. Even though you might feel charitable and try and help someone out, those situations rarely end on a positive note.
You’ll also want to make sure and tenant-proof your properties. That means, set a list of guidelines your tenants must follow. Some examples are:
- Only use glossy or semi-gloss paint for easy cleanup.
- Only let your tenant choose friendly paint colors.
- Prohibit damage to the wall from mounting TVs or any other hangable items.
- Install good door stoppers behind every door in your rental property.
- Protect the floors and avoid installing carpets without proper padding and use durable fabrics.
- Require air filter replacements and install durable window blinds.
- Never allow for any property, home renovations, or changes to your property without approval.
The list goes on and ensuring your rental property is tenant-proof is of the utmost importance.
6 – Finally, Invest Logically Instead Of Emotionally
You don’t need to be a genius to know that buying property isn’t cheap. It’s going to be a big investment. Preferably, when looking for a rental property, it’s best to think with your head instead of your heart.
Even though you could have found the “perfect” home, is it the perfect home for you and your tenants as well? Since you are investing your hard-earned money, it’s difficult to step back and not involve your emotions.
You must approach your rental property as a business and not as a personal investment. It’s important to stick to your numbers and budget, and make sure you stick to your plan of action!
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Be sure to read How to Buy Your First Home Before Your 30’s too!