When done right, a real estate investment can lead to lucrative gains with a hands-off approach, especially if you make use of an experienced property management company to manage the day-to-day needs of your tenants and the building. On the other hand, if you aren’t making careful decisions, there is a lot that can go wrong, too. Before jumping into a real estate investment, make sure you consider these three factors.
1. Check Your Emotions
If you’re an experienced investor, you already know the ups and downs of finding a property, getting excited about the potential, and then having to face reality once you’ve done your due diligence. For those who are new to the game, it can be challenging to separate your emotions from the truth—especially if you’ve seen a lot of potential in a property. Remember, all investment decisions are business decisions and must be profit-driven, or you could land yourself in serious financial trouble.
Make sure you do your homework before starting any deal. Is the neighborhood right for the market you’ll be trying to attract? Are your income expectations in line with current leases? Were any major issues found during the inspection such as roofing, HVAC, and plumbing? Will the units need major renovations, appliances, or other large expenses in the near future?
2. Check Your Financials
It’s often recommended that you choose a low-cost property as your first investment to help prevent serious losses due to unexpected expenses or less-than-stellar income from your property. You may not be raking in millions in profits, but you’ll be learning a great deal about the process of finding and purchasing a property, managing tenants, and maintaining the building, common areas, and individual units. Then, you can put that knowledge to use for your next purchase and be ready for steeper risks.
It’s also important to carefully consider your loan options to make sure you’re not losing all your money in interest, fees, and other expenses relating to the loan. Improve your loan options by saving up a considerable down payment and cleaning up your credit to remove any blemishes.
3. Managing Tenants
Remember that you’ll be providing a primary residence for your tenants, and there’s a great deal of responsibility that goes along with this type of investment. For example, when choosing new tenants to fill vacancies, you’ll have to screen them thoroughly to make sure that they will not only pay their rent, but also not pose a danger to your current tenants. Plus, things break, the weather will surprise you, and accidents will happen. Consider using a professional property management company that will ensure your tenants and your building are cared for. In addition to making sure your tenants are safe and comfortable, a property management company will also help keep vacancies to a minimum and are skilled at screening tenants, so you always get a good fit.
Making Good Decisions
An investment property is an exciting proposition that can bring a steady source of passive income, as long as you’ve made good decisions. Remember to check your emotions at the door, carefully review your financials, and consider the effort required to keep your tenants happy, and you’ll be ready to jump in.