Owning and managing your first rental property can be equal parts exciting and anxiety-inducing. While the right rental stands to net you a significant sum in passive income each month, a number of avoidable mistakes stand to cut into your profits. Unfortunately, many first-time landlords lack the experience and foresight to stop themselves from making a variety of missteps. However, knowing is half the battle, and taking the time to educate yourself on the things that stand to hurt your first rental property can dramatically reduce your chances of making unfortunate blunders.
Failing to Have the Property Inspected by Professionals
No matter how good the images you see online look, you should never invest in a rental property that you haven’t personally inspected – or, at the very least, tasked seasoned professionals with inspecting. While some sellers actively try to hide problems with their properties, others are genuinely unaware that certain problems are even present. In other words, certain issues tend to be extremely obvious, while others are likely to elude all but the most experienced pros.
So, before committing to purchase your first rental property, enlist the aid of a knowledgeable building inspector, electrician and plumber. Once these individuals have thoroughly examined the property, they’ll be able to provide you with a detailed rundown of any problems they came across. Depending on the size and scope of the issues they discover, it may be in your best interest to walk away from the deal. Alternatively, if the issues they discover are noteworthy but not particularly pressing, you can use this information as justification for requesting a reduction in price.
Unsurprisingly, purchasing a rental property that hasn’t undergone a meticulous inspection can cause huge problems for you down the line. Furthermore, you should be wary of any seller that tries to make forgoing an inspection a prerequisite for purchasing a property.
Working with Unreliable Contractors
Should the rental property you purchase require repairs and/or renovations, make a point of working with dependable contractors. For starters, any contractors with whom you do business should be fully licensed and bonded. While you may be tempted by the comparatively low prices offered by many unlicensed contractors, operating as an unlicensed contractor is illegal. Furthermore, you’re likely to bear a greater degree of liability if an unlicensed contractor becomes injured while working for you. In addition, an unlicensed contractor is more likely to walk away from an unfinished project than a licensed one. On the flipside, a reliable licensed contractor will typically stick around until the work is complete, obtain the relevant permits and utilize convenient permitting software.
To help ensure that you wind up with the right contractors, seek out online reviews from previous clients. Fortunately, there’s no shortage of user-friendly consumer feedback resources, and you should have no trouble finding detailed reviews for virtually every licensed contractor in your area.
Not Purchasing the Proper
If this is your first time owning a rental property, be advised that homeowners cannot be applied to a property whose owner doesn’t reside therein. That being the case, make sure to seek out a good landlord insurance policy. The right policy will provide you with convenient coverage for property damage, lost rental income and liability. In the interest of maximum safety, make sure to encourage your tenants to invest in renters.
Not Vetting Rental Applicants
No matter how well-maintained your rental property is or how desirable an area it’s located in, tenants who are unable to keep up with rent can drastically inhibit your ability to generate income with it. As such, you’ll need to abstain from going with your guy when it comes to prospective renters. In addition to running a credit check on each potential tenant, confirm that they have enough income to comfortably afford rent and get in touch with any references they provide.
Your first rental property can act as a fantastic source of passive income. However, as is the case with any investment venture, success is never guaranteed, and there are a number of missteps that stand to turn this situation into a nightmare. Luckily, many of these missteps are easily avoidable – provided, of course, you’re willing to take the time to educate yourself. So, when investing in your first rental property, be extra-mindful of the following behaviors.