After my team sports days ended, I wanted to stay active and still get the feeling I was doing something athletic. Most of my friends and business colleagues played golf and I thought—why not? I played basketball most of my young life and had a decent feel for other sports, so golf should have come easily to me. I was wrong. As most beginners can attest, golf can be a frustrating sport to learn. It has little correlation to running, jumping, catching, and throwing. When I struggled to hit the ball well (or at all), my frustration mounted and my fishing gear quickly reemerged from the far reaches of my garage.
I have little patience for leisure activities that raise my blood pressure. I’d rather spend my free time on hobbies that soothe me. Fortunately, when it came to my real estate pursuits, I didn’t expect to learn the business in a month, despite years of small business experience. Investing in rental property for beginners requires a measured approach. I learned that there was no substitute for real-world experience.
Investing in Rental Property: What Beginners Should Know
Being a successful investor in rental property doesn’t happen overnight. You can’t expect to buy a home, find tenants, and cart cash to the bank. Follow a prescribed process, exercise good judgment, and you’ll eventually reap the rewards of being a landlord. Over the years, I applied the following tips before and during my tenure as a landlord.
- Education. Tax laws and local ordinances change frequently. Stay abreast of any legal or political developments that might affect your bottom line. I don’t care if you’re an Internet aficionado, a library-goer or someone who seeks the advice of others—you must know as much as possible about this business. Learn the fundamentals and then work on the more intricate details of real estate investment. To get the best real estate investment training, you’ll want to seek out a mentor to guide you through the ins and outs of working a deal.
- Location. I buy homes in neighborhoods that are close to good schools, shopping districts, and public transportation. Most tenants I rent to will pay a premium for convenience. They want easy access to attractions and amenities, and don’t relish long drives to work or play. Choosing the right location will help maintain healthy occupancy rates, aiding your ROI.
- Inspections. Don’t skip the home inspection before you buy. Some properties may look fine on the surface but major issues might escape your discerning eye. Leverage the expertise of reputable home inspectors who are trained to spot problems that could cost you some major dollars—leaky roofs, faulty furnaces or hidden mold, to name a few.
- Financing. The lower your mortgage rate, the higher your projected return on investment will be. Maintain good credit, create some savings, and shop for the best home loan deal possible. Low closing costs preserve working capital and shorter-term mortgages reduce the amount of interest you’ll pay over the life of the loan. Any dollars shaved off the front end will help strengthen your returns on the back end.
- Updates. Most rental properties will require some spit and polish. You’ll want to create appeal inside and out for prospective tenants but don’t make luxury upgrades in a neighborhood where similar properties don’t exist. You can’t expect premium rents in an area that reflects average build quality. Weigh median rental prices against repair expenses and be sure the equation yields a projected positive cash flow.
- Tenants. Rare is the landlord who hasn’t experienced costly problems with tenants. Renters often damage property and skip town without paying money they’ve owed you for months. Uncover as much information as you can on prospective tenants. Perform criminal background and credit checks, and demand previous rental references.
- Maintenance. Appliances break. Wear and tear on carpets, flooring, and paint is inevitable. You may have the skill to address these concerns yourself, and a DIY approach will save you money. If not, develop relationships with contractors and handymen who maintain good standing in the community. You can often get referrals from fellow real estate investors.
- Slush Funds. The most careful plans can be waylaid by expenses that aren’t built into your budget or covered by insurance. For example, a drip from a leaky pipe might not be detected for months before it damages interior walls or floor joists. Real estate investor insurance policies may cover damage from sudden water discharge but you will bear the cost from lingering leaks. Therefore, maintain an emergency fund for unexpected expenses.
- You—and Who Else? Like any other business, the rental property arena entails wearing a lot of hats. Some aspects you can manage and others you may need to delegate. If finance is your bag, you’re probably comfortable creating budgets and managing cash flow. Leave the physical work to contractors and utilize realtors for managing closing documents. Building professional networks allows you to focus on your strengths and lessen the inevitably heavy workload.
Taking it to the Next Level
I like to get out of the gate quickly. Sometimes my zeal for new projects places my ambitions far ahead of my capabilities. A golf swing coach once offered me advice that could be applied to most new ventures: Slow down. I received similar advice on rental property investment from my mentor at HomeVestors®. After joining the ranks of other experienced HomeVestors® franchisees who have closed more than 100,000 deals nationwide since 1996, my own game improved dramatically. HomeVestors proven marketing and valuation tools helped me to put one foot in front of the other, something I could never do on the links.
Contact HomeVestors today to see how you can reach the green too, one swing at a time.
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