Do you operate rental properties as part of your real estate investing strategy? There are many considerations investors must take into account when buying a rental property: the budget and potential monthly rent amount, the location of the property, the right real estate investing strategies, and the potential cash flow. In addition, property investors need to avoid common mistakes in the real estate business to set themselves up for success.
Steering clear of these mistakes will save you time and money. To help you avoid some pitfalls, our experts will explain some of the biggest mistakes rental property investors should avoid.
Buying Too Many Rental Properties (Too Fast)
It can be easy to get ahead of yourself when starting in the rental property investment game. Success with one property can make it tempting to jump ahead and buy up more properties quickly! However, it's important to remember that everything in life has risks, and buying too many properties too fast is one of the biggest mistakes you can make as a rental property investor.
Building a significant portfolio too quickly can strain your finances, and managing them effectively will also be challenging. You'll need to put the right real estate investing strategies in place with an excellent system for tenants, repairs, drafting a rental lease agreement, and accounting if you want to succeed with more than one property. Even then, there's no guarantee that everything will go smoothly.
Seasoned investors recommend starting small with one manageable property and building from there. This way, you can learn the ropes without taking on too much risk. You can always buy more properties later if you're successful with your initial investments!
Not Getting Appraisal Reports
Property owners also commit a crucial error when buying a rental property but skip appraisal reports. If you don't have an accurate appraisal report, you may pay a much higher price for a property compared to similar prices around the neighborhood (or what the property is really worth).
Real estate investors need an appraiser, so make sure you get an appraisal report before purchasing a rental property! They're essential for protecting your income.
Investing Based (Only) on Appreciation
Another mistake to avoid when investing in property is basing your buying decision on how much the property will appreciate over time. While it's undoubtedly important to consider this when buying a new investment property, it should not be the only factor you consider.
Real estate investors must also consider potential income, estimated expenses, location, value and potential repairs, and how these issues will impact your return on investment (ROI).
Hiring Bad Property Management
When operating rental properties, it's essential to make smart choices when choosing a property management company. Unfortunately, some companies are unqualified to deliver the returns you need.
The right property manager will understand how to customize standard lease agreement forms that comply with your state's and local laws, ensuring your investments are law-abiding and avoid legal trouble down the road. They’ll also have the best practices to maximize returns, care for tenants, enforce leases, and keep properties in excellent condition.
Not Planning Ahead
It's easy to get excited about real estate investing and think that the best way to start is by jumping into it, bypassing any planning process or education that could help you avoid common mistakes made by other investors. However, the best way to prevent yourself from making a significant hiccup in this business is by being prepared beforehand.
Being prepared means creating a written plan that captures the goals for your business and how you plan to get there.
Buying Rental Property in a Depreciating Market Area
When buying a rental property, it's essential to do your research and find a thriving area. This ensures that you have a better chance of seeing a good return on your investment. In a depreciating market, rents go down, and prices are unpredictable. This makes it difficult to achieve the cash flow you know, and it’s risky for investors.
In addition, fewer people are looking to buy or rent in a depreciating market, so demand for housing is lower than in other areas and can affect your vacancy rates. Make sure you consider all of these factors when buying any property!
Making Emotionally-Driven Decisions
Making decisions based on emotion is another mistake to beware of. When your emotions run high, or you buy a property based on a “feeling,” it's difficult to be objective and make rational choices.
Remember that buying investment rentals should be treated differently from looking for a personal residence for your next place to live. Rental properties must maximize your investment return, so put feelings and personal preferences aside and choose properties based on the factors that will generate revenue!
Find the Perfect Investment Property With Privy!
The key to success is finding a residential property at the right price, renting it to tenants at a competitive rate, and maximizing returns. Avoiding the mistakes we talked about today can help you reach your goals and make smart decisions on your next investment property purchase!
That's where Privy comes in! Privy helps find your next real estate investment by providing access to available properties across the U.S. Our proprietary algorithm analyzes data on millions of homes for sale and then delivers them to your inbox based on matches to your criteria. Reach out soon to learn more!
A residential lease agreement is critical to success with rental properties. Download our free resource, “The Ultimate Guide to Lease Agreements.”