Are You Buying a Rental Property? Don’t Make These Five Common Mistakes
Is now the time to buy a rental property? You will find plenty of investors who say it is and plenty who say to wait. If you are considering doing so, we hope you will take the time to read these five common mistakes that are made and find your own way to avoid them.
- Relying on How You Feel About a Property Rather Than the Facts
- Do Not Make a Bad Financing Decision
- Do Not Take it All on Yourself
- Research, Research, Research
- Choosing the Wrong Property
Many people get so excited about buying a property that they essentially become blinded to the facts. What are the facts? That not all rental units are right. When you walk into an open house and immediately start imagining how you would clean it up, decorate it, and make it look lovely, this can be a mistake. The real questions are this: Does it have structural integrity? What are the overhead costs going to be? How much will it realistically take to fix it up? Use these facts to make the right decision.
Of course, you will not go into this process planning to make a bad financial decision but you may not realize that you are doing so. There are many financing options that may be available to you, some of which may be quite risky. Before you decide on one, do your due diligence and be sure you know what payment options are going to work best for your situation and your long-term investment goals.
Make sure that you are able to not just put down the down payment, but that you have enough liquid assets leftover to handle any emergencies. Remember that if something breaks on the property, it is up to you to have it fixed or replaced. You also need to prepare for the possibility that your property will be vacant for months at a time.
You are not alone in this. You need a host of professionals to help you do this right. To start with, you need the right real estate broker who can help you find the right property. Then you need a real estate attorney, insurance broker, escrow company, home inspector, and even a property manager if you want to be hands-off.
Do not base your decisions entirely on what might be. Yes, it may seem that a neighborhood is up and coming but if you can’t pay the mortgage with the rental income that is likely today, then you should not purchase the property based on what rental income may be a year or more down the road.
Your budget should be the first thing to consider. Then look for options within that range. It is likely that you are not going to find a perfect property but do not choose the best of the bunch just because that is all that’s available today. Be patient and wait for the right property.
