Rental properties can be a great investment that can give you positive cash flow each and every month but it doesn’t happen magically you need to put in the work. First of all you need to find a property that will cover the expenses including mortgages, taxes and other expenses. The most common mistakes that are made when it comes to investing in real estate involve underestimating your expenses along with not screening your tenants. Don’t make these mistakes when investing in rental property.
Mistake #1: Don’t Underestimate Your Costs
Aside from the cost of your mortgage you are going to have other expenses such as taxes and insurance. You will also have to ante up for the costs when your property is vacant or a tenant has done damage and your property is sitting vacant while it is getting repaired. You will also need to put away some money for emergencies like a new furnace or hot water tank. Ideally your regular expenses should be no more that 1% of the purchase price of the house.
Mistake #2: Rental Property is Not a Get Rich Quick Scheme
Stop watching HGTV or listening to infomercials. The real world of real estate investing looks nothing like that. These shows and commercials give a very unrealistic view of what real estate investing is really like. Rental property is a business and not necessarily a passive investment scheme. You need to be ready for tenants calling you in the middle of the night because the toilet is clogged. If you plan on hiring a property manager then be prepared to pay for it.
Mistake #3: Always Screen Your Tenants
Even the nicest of people can turn out to be the tenants from hell and it can end up costing you a small fortune. A credit check can be done fairly cheaply and verifying references is a couple of phone calls. You can find out if your prospective tenant paid the rent on time, did damage or was difficult to deal with. Take the time to learn the law concerning landlords and tenants so you can take steps to protect yourself.
Buying rental property can be a fantastic way to make money but you need to do your due diligence before you sign on the dotted line. Understand your expenses and cash flow for each and every property. You need to know what repairs the property needs or will need in the near future. Be very firm on your deal breakers and don’t be afraid to walk away from a bad deal.