It’s easy to see why so many people view rental properties as beneficial investments. After all, a good rental can generate passive income for decades and pay for itself many times over. However, inexperienced investors who believe that all rentals represent equally wise purchases are liable to find themselves deeply disappointed and financially drained. In the interest of avoiding such an outcome, fledgling investors should make every effort to avoid the following mistakes.
Selecting the Wrong Funding Method
There’s no question that your first rental property represents an enormous investment. In fact, it may very well be the largest investment you’ve made up to this point. That being the case, you may be understandably hesitant to part ways with such a sizable amount of money.
First-time investors who have reservations about spending too much would be wise to consider real estate crowdfunding. Per the name, this process involves pooling funds with other investors, thereby ensuring that no single individual is taking on an exorbitant amount of risk. Furthermore, for additional peace of mind, most real estate crowdfunding opportunities entail enlisting the aid of people who are adept at seeking out low-risk, high-reward properties.
Of course, this isn’t to say that the crowdfunding route is without its disadvantages. For example, while crowdfunding effectively minimizes your individual risk, it also limits how much of a profit you stand to make from a given investment. As such, anyone giving serious thought to this avenue of funding should take the time to carefully consider real estate crowdfunding pros and cons.
Forgoing Professional Inspections
The larger the investment, the clearer the picture you should have of what you’re buying. With this in mind, you should never invest in a rental property that hasn’t been meticulously inspected by certified professionals. Even if you’ve personally conducted multiple walkthroughs of a property, there are a multitude of issues that you, as a non-professional, are highly likely to miss.
So, no matter how confident you are in a property’s overall condition or how many assurances you receive from the seller, a thorough pre-purchase inspection should always be a prerequisite for purchasing a rental property – or any piece of real estate, for that matter. You may not even be able to purchase landlord insurance for the property in the absence of an inspection.
As a potential purchaser, you have virtually nothing to lose from insisting on any inspection. For one thing, the results of an inspection stand to enhance your bargaining power many times over. The more outstanding issues these results reveal, the more justified you’ll be in asking the seller to lower their asking price in accordance with the combined cost of addressing said issues. Furthermore, if a property is laden with costly issues that are massive in scope, this may serve as a solid indicator of an unwise investment.
Overpaying for a Property You Fall in Love With
Should you come across a potential investment property that perfectly clicks with your personal sensibilities, you may become enamored with the idea of owning it. While there’s nothing inherently wrong with seeking out rentals that appeal to your tastes, this doesn’t mean that you should allow yourself to be taken advantage of when it comes to price. To help prevent this from happening, take care to do some research before proceeding to make a serious offer on any rental, regardless of how in love you are with the property.
So, in advance of putting forth an offer, carefully research how much similar properties are selling for in the same area. If you discover that the seller’s asking price is significantly higher than the ones you see attached to similar properties, amend any offers you were thinking about making and/or request an explanation from the seller.
Not every rental property you stumble upon is guaranteed to bring you good fortune. In fact, some rentals can drain your finances for years, leaving you with no choice but to sell them at considerable losses. That being the case, all new investors should seek to limit their chances of winding up with a lemon. Since your first rental can effectively set the stage for other real estate investments, it’s in your best interest to do your homework before moving forward with any purchases and avoid the missteps outlined above.