Rental properties can be a smart investment for anyone looking to generate passive income. The right property in the right locale stands to net you a handsome sum every month, enabling you to invest in even more properties. Unfortunately, many first-time investors subscribe to the mistaken notion that owning rental properties means not having to lift a finger. While it’s true that rental properties can be great sources of passive income, the “passive” part shouldn’t be taken too literally. New investors looking to increase their chances of success would do well to avoid the following missteps.
Not Investing Early
When it comes to certain investments, getting in on the ground floor can make all the difference. In these instances, failing to invest early can result in you missing out on huge opportunities. So, the next time you come across such an opportunity and are curious about why you should invest early, don’t hesitate to reach out to an investment expert. If early investment is a prerequisite for success, make sure to get all the pertinent information in a timely manner, as this will enable you to make an informed decision without acting too rashly.
Failing to Read Up on Housing Laws
A familiarity with state and federal housing laws can do any landlord a world of good. Conversely, failing to familiarize yourself with such laws stands to make you the target of lawsuits and do considerable damage to your professional reputation. If you aren’t well-versed in housing laws, you may inadvertently wind up rejecting rental applicants on unfair grounds or engaging in other behaviors that are unbecoming of property owners. If you’re on the fence, look at it this way: Taking the time to brush up on housing laws costs you nothing, whereas actively avoiding this is liable to cost you quite a bit.
Not Setting Aside Emergency Maintenance Funds
No matter how new or well-maintained a property is, you’re going to be dealing with the occasional maintenance issue. Sometimes, these issues come about as a result of negligence on the part of renters. In other cases, they’re completely unforeseen and can’t be traced back to a particular party or incident.
Regardless of the reasons property issues occur, it’s imperative that you be ready for them. In addition to having a dependable maintenance staff on hand, being prepared entails setting aside ample funds for unexpected emergencies. If a property is particularly new, it’s easy to see why some landlords might not regard emergency funds as a priority. However, when a problem inevitably occurs and you’re unable to pay for repairs, you may find yourself on the receiving end of tenant lawsuits or see your professional reputation suffer. At the end of the day, if you can’t afford to maintain a property, you can’t afford to own it. So, at the end of each month, take care to place a portion of the rent you receive in an emergency fund.
Assuming a Property Will Always Have Tenants
It’s generally not a good idea to assume that a rental property will always have tenants. Even if the property in question is well-maintained and/or located in an in-demand area, there are a variety of reasons for which it may go long periods of time without any renters. That being the case, it’s important for you to plan for such periods accordingly. While it’s reasonable to assume that a highly desirable property will be occupied the majority of the time, you’d do well to recognize that this is by no means a certainty.
So, just as it pays to have emergency funds for maintenance, so too are you advised to keep money on hand for vacant periods. This will help ensure that the property being unoccupied doesn’t automatically equate to you losing money.
Rental properties can be fantastic long-term investments. With highly-desirable properties in highly-desirable areas, you can effectively generate a small fortune in income every month. However, this isn’t to say that every rental property investment is a sure thing. In fact, going into the investment process without the proper knowhow, you may ultimately lose a lot more money than you stand to make. To help increase your odds of making successful property investments, make an effort to avoid the blunders outlined above.
