You’ve probably heard anecdotal stories about real estate investors who retired well with the money they earned from their rental properties. Or maybe you’ve just watched enough episodes of HGTV’s Income Property and Renovate to Rent to make you feel secure about your ability to turn a profit.
If you’re thinking of investing in rental income property, you’re not alone. As of 2013, 28.1 million Americans considered themselves real estate investors. To put that number in perspective, it’s roughly equivalent to the number of people that contributed to a Roth IRA the same year. At Shield Property Management & Sales, we can help you get started on the road to having a successful income property.
Here are five common mistakes to keep in mind during the buying and rental processes:
- Following Your Heart
When you bought your first house, you likely scoured dozens of neighborhoods for the perfect starter home. Maybe you went to dozens of open houses, checked every MLS website out there or teamed up with a licensed agent to make it all happen. The kitchen counters had to be granite or the dining room large enough to seat your entire family. Remember, an income property isn’t your home. It’s an investment. Buy a property with good rental income potential in a desirable location. It doesn’t have to be the home you would choose for your family, as long as the location and layout appeals to solid, stable renters.
- Being Short on Cash
Many first-time investors think they’re ready to go the second they have a down payment in hand. They have no additional savings or steady source of expendable income. It’s a huge mistake to not keep a sizeable amount set aside for closing costs and renovations, as well as operating expenses such as repairs, property management costs and property taxes. Don’t forget, your property taxes may also increase at any time. So, do your homework and ensure you’ll have enough set aside for a few years’ worth of expenses before diving in.
- Not Getting the Right Tenants
Thinking of cutting costs and managing your own properties? You wouldn’t believe the horror stories we’ve heard from owners who rented their income properties on Craigslist or posted “FOR RENT” stakes on their front lawns. Not to mention the hassle of fixing broken faucets and collecting late rent all on your own. Verifying income and rental history is only part of the process. Shield Property Management offers three tiers of service that cover everything from tenant selection and screening to rent collection, move-in processing and tenant emergency calls.
- Not Treating Your Property as a Business
You might feel tied to your rental house, or to the tenants who live there, but ultimately the decisions you make regarding your income property shouldn’t be personal. This is a business. Make a fallback plan. Budget wisely. Sell if you feel it’s a good move. The more solid business decisions you make, the closer you’ll get to goals like having enough money for retirement.
- Buying Only One Property
If you’re flipping one house at a time, or investing in a large commercial building such as an apartment complex, it makes sense to stop at one property for now. However, a single rental home isn’t likely to ever net you enough to retire unless it’s a luxe Paradise Valley mansion you inherited from your reclusive great aunt Sally (assuming you can even afford the taxes on that baby). Increasing the number of income properties you hold can drastically multiply your profit. Just make sure you have enough time, energy and capital to make it happen without overextending yourself.
For assistance in finding and managing your rental properties, contact us at Shield today.