Financial investment in rental property is one of the best ways to earn income and still have a long-term wealth creation. If well managed, it should expand your finances and grow your capital base without incurring losses.
Sadly, most investors make mistakes while buying a rental property. Proper research is essential to avoid making the following mistakes while purchasing a rental property.
1. Not doing enough research
A good investor should perform due diligence on the property, its size, and type to determine the tenant segment they would be looking to lease to. This includes a local market survey on the property and its likelihood to bring in profit. The needs of the target clients greatly influence the property’s location.
Consider the livability and amenities within the neighborhood. Ensure all the clauses in the contract meet your requirements and seek legal assistance from reputable legal firms dealing with property management. In addition, before buying a rental property, be sure to use a cap rate calculator to estimate how much the rental property would make and compare that with other properties in the same area.
2. Poor financing
A solid investment is guided by understating one’s cash flow or finances. It should have a good return on your investment and help your finances grow without incurring risks. Ensure you clearly understand all the property costs, interests, insurance, and rates that won’t lead to a negative cash flow. This is why it’s important to source the services of a qualified accountant or personnel to manage the property income.
3. Lack of a property manager
You can’t do it all by yourself. You need a well-versed team to help in managing and running your property. Having a good property manager eases the stress on the investor by ensuring smooth running of the property through tenant placing and general maintenance of the property. They will also help you have a rental rate analysis to understand the surrounding properties better.
Having an in-house manager is considered the best policy as they know the general locality of the property and can quickly respond to the needs of the tenants.
4. Having too many rental properties
When appropriately managed, rental property can provide a secure financial future stability. One can only achieve this if the investor takes time to invest in one property for a better understanding. Having large properties can put more pressure on the investor, leading to mismanagement and poor decisions regarding the properties.
5. Not searching for enough rental properties before buying
Before buying a property, search for multiple other properties, thorough comparison research and financial analysis. Through proper research, one will be better placed at selecting the best property that will yield more returns.
6. Emotional property attachment
Property investment is a source of income and capital growth and should be treated as such. Having an emotional attachment to a property that’s not generating income will make you run into more debts which should not be the case.
7. Investing in a property within a depreciating market area
The reason behind property investment is to generate more income and have a return to your investment fast for you to invest more. In depreciating market areas, rent will go down, meaning the monthly turnover will be low. Always have a sharp eye on areas where the demand is high. One can achieve this by having good market research.
Avoiding these common mistakes may save an investor time, money, and poor hasty financial decisions. This does not guarantee zero challenges, but it will prepare the investor to face them.