Rental property is one of the best investments you can make. It’s a great wealth building tool that has helped thousands of people advance financially in life. However, if you’re not careful, rental property can drain rather than boost your investments.
To help you out, here are the most common mistakes to avoid when investing in rental property.
Failure to research
You don’t need to be an expert in property investments to know that some prior research is necessary. Familiarise yourself with the area you are interested in – current and potential future developments, crime statistics, median mortgage and rental rates, popularity among working professionals, students and young families, amenities, vacancy rates of properties, etc. All of this background information is pertinent to the value of the property you are looking to buy.
Going overboard with renovations
Many landlords are trying too hard to make their properties ‘Instagram-worthy’, overpaying for upgrades and renovations. While it’s important to make your rental property as attractive to tenants as possible, keep in mind that a buy-to-let property is different to an Airbnb.
You are not trying to attract influencers and expats but stable tenants looking for a cozy place to come home to and get good value for their money. Choose renovations that have the highest return on your time and money. Avoid major renovations that could take a longer time to complete especially if the rental property is already in an acceptable condition.
Not buying positive cash flow property
Positive cash flow properties are profitable. There are a few ways to avoid creating negative cash flow with your rental property:
- Compare several properties to ensure you aren’t overpaying for your property.
- Do the math to see if after paying for expenses such as insurance, taxes, maintenance, and mortgage premiums, the investment is still worth it.
- Check to see if you can afford to be flexible in terms of rent. Vacant rentals can be costly.
- Invest in areas with high demand and low vacancy rates. Avoid investing in a property surrounded by other rental properties.
Buying too many properties
As a novice investor, it’s always best to start small and build your property portfolio organically as you learn more about the market. Invest in one rental property and take your time to get a feel for the rental property investing business. Some experts even recommend waiting a minimum of one year before buying another.
Trying to save by self-managing
Not hiring a property management company can seem like a reasonable way to cut back on expenses. But it will likely end up costing you more down the line. When you work with a property management company, you may receive discounts on maintenance and repairs due to their established relationships with vendors. You’ll also avoid making errors that can result in legal issues. It’s hard to put a price on the free time you’ll get to enjoy without dealing with a host of day-to-day issues that are part of owning a rental property.
Underestimating the legal side of things
Many first-time buyers skip insurance when investing in a rental property or fail to hire a solicitor to look over the purchase agreement. While both might seem like money thrown down the drain, you may be making mistakes that will be costly to fix. Having insurance can protect you against inclement weather conditions and a lawyer will ensure the contract has all the necessary clauses.
As you see, investing in rental property is no doubt a profitable business. However, it’s imperative to avoid common mistakes to minimise financial losses.
