Buying a single-family rental is a big step to take, but if handled correctly, it can prove very worthwhile. Many others have done it before, so why not learn from their mistakes?
Here are four rental investment mistakes and how to avoid them.
Not Understanding that You’re Investing in a Business
Unlike most other investments, owning a single-family rental is not a passive endeavor. When you buy other investments, all you really need to worry about is when to buy and sell—your return on investment depends on factors outside of your control, such as the state of the economy. With real estate investment, what you do (or fail to do) determines much of what you get in return.
Instead of thinking of buying a real estate rental property as an investment, think of it as investing in a business. Your local market has an effect on how much you make, but how much time, energy, and money you put into your rental has the biggest impact.
Spending Too Much on Improvements
While many of the changes that you make to your single-family rental will add value, you can go overboard. Improvements that you need to focus on should contribute to your property’s safety (including keeping things up to code), cleanliness, and marketability. Anything else is overkill. It’s common for rental property owners to let their personal style influence the improvements they make—such as decorating in a certain style or adding amenities that the owner thinks are necessary—but what you need to remember is that you are not going to be living there. You have to appeal to what others want.
Not Preparing for Unforeseen Expenses
Let’s face it—the housing market can be unpredictable. As a rental owner, you are going to face times when you can’t fill a vacancy. It’s part of the risk you take when you buy a property. Unfortunately, if you don’t have the resources to keep going during tough times, you could end up in financial trouble.
Failing to Account for Bad Renters
As mentioned above, buying a single-family rental is closer to buying a business than it is to buying an investment. And just like any other business, you have to cater to your customers. However, some renters can turn out to be bad for business. It’s important to handle problems swiftly when they arise. Late rent payments, violations of the rental agreement, conflicts between tenants—not only are all of the problems associated with bad renters costly and time-consuming, but they are stressful, too.
When you invest in a rental property, consider hiring outside help, such as a property manager and legal representation.
Thinking of Investing in a Single-Family Rental?
If you’re planning on taking the next step to become a rental owner, AM Law is there for you. We are expert real estate attorneys who can help you every step of the way, from real estate closings to contract negotiation. Contact us today to learn how we can help.