Property rental can definitely be a worthwhile investment as long as you know what to do and what not to do. Recognizing and avoiding certain mistakes, like buying the wrong property or not screening tenants, can help to ensure property rental is worthwhile for you. If you have the right property, good tenants, maintain the property well and have minimal vacancies, your investment will be more worthwhile.
The right property
Investing in property for rental can be exciting as long as you make the right choice. You will need to take the age, size, and location of the property into account. Properties that need extensive repairs upfront or over time may not deliver the best return on investment (ROI). You can’t just buy any old property as the amount you spend on fixing issues may quickly amount to more than you can bring in from rent.
The size of a property can also present certain problems. The bigger it is, the more care and maintenance it’s likely to need. Maintenance costs will obviously be higher on a large property.
The location of the property matters too. The neighborhood in which you buy will determine what type of tenants you can acquire and your vacancy rates. Properties in unpopular areas may go for lower prices, but they can be more challenging to rent out. You also need to take the property taxes in the area into account, as these can vary widely from area to area. Schools, amenities, crime rates, etc., are other factors you must consider when buying a property if you want it to be a lucrative investment.
Screening tenants properly is necessary if you want to find ones who will pay on time and take good care of your property. If you skip the screening process because a potential tenant is recommended by someone you know, it could be a mistake. You should still screen the person anyway.
You need to find out if a tenant has a good credit record, no criminal background, proof of income and references from previous landlords. If you screen potential tenants and identify possible red flags, you can politely turn them down in favor of those who are more likely to pay their rent. Screening tenants can be tricky, and the more you rely on tried-and-true screening methods instead of a gut feel, the more likely you are to find good tenants.
You may think you will save money by using the cheapest contractors to deal with maintenance issues. What you will find is that if you skip or put off various maintenance tasks, you run the risk of having to make more extensive repairs at a later stage. Major repairs cost way more than small projects. Think about dealing promptly with a termite infestation before it causes major damage or dealing with mold before it makes a home uninhabitable.
Regular property inspections can reveal a number of minor issues that could become serious over time. Tenants won’t always report issues that don’t directly concern them and that they don’t notice, such as a damaged roof tile that could eventually cause a major leak.
Tenants who experience problems when trying to get landlords to make any repairs may just move out. They won’t want to stay in a property that’s slowly deteriorating. The more it deteriorates, the less rent you can charge and the less you get for the property when you decide to sell.
If you communicate with your tenants, you can address any problems before they escalate and make sure you retain them. The longer you can keep good tenants in your property, the better your investment will work out for you. If you frequently have to look for new tenants or your property stands vacant, it affects your ROI.
Having the right financial processes in place offers significant advantages. For a start, you will need to open a separate bank account for your property rental business, so you don’t confuse your business and personal finances. You will need to record your monthly rental income and all the monthly expenses you pay, including utilities and maintenance costs.
If you keep good records, you may have to pay less tax because you can take certain deductions. Having an accountant who offers you advice on which deductions you can take can help to reduce the amount of tax you pay. Keeping meticulous financial records can also help you to get a better price when you want to sell.