A lot of people are thinking about the idea of investing in rental properties. The demand for housing makes this seem like a sensible idea on paper and the idea of having an income stream while only putting in a little bit of work is quite appealing. However, the amount of success you can expect when you invest in this sector will be determined by a few factors. Here are a few ideas for raising your odds of success:
1. Be realistic:
A new income stream doesn’t mean you’ll have loads of cash to splash around come the end of the year. It takes a while for the income stream to become constant and even so, there will be other expenses to think about. If you’re too eager, you may set the rent too high only to end up losing tenants.
2. Don’t put too much effort into it:
Owning rental property should, ideally, not be a full-time job. It makes more sense to hire a property management firm to handle the day-to-day operations so you can simply be a passive investor. If you have to work full-time, this will be more of a full-time job.
3. Understand the laws in your jurisdiction:
The responsibilities and liabilities of a landlord may be different depending on where you are. If anything goes wrong, you will be held liable regardless of whether or not you were aware of your responsibilities.
4. Carry out your own property inspection:
Getting a professional to inspect the property on your behalf before buying it will ensure you don’t end up with a building with many hidden problems.
5. Check the legality of your leases:
Just because both you and your tenant signed the lease doesn’t make it legally binding. A lease has to adhere to certain laws and if not, it will not be considered legally binding. This can be a problem if you’re taken to court by a tenant.
6. Do background checks:
The eagerness to fill a vacancy can make you sloppy. Sometimes a vacant building is a better option than bringing in certain tenants. Look into your prospective tenant’s credit history and if possible, what past landlords have to say about them.
7. Become part of a local landlord’s association:
This is a great way of benefitting from other people’s experiences. Other landlords can provide you with sample leases, contact information for lawyers, inspectors and contractors, copies of rules and regulations etc.
8. Know the right professionals:
Ensure that you’re in close contact with a banker, a lawyer and a tax professional. All three will be vital when you’re thinking about expanding your portfolio.
9. Choose the right insurance:
Ensure you have an insurance plan that will adequately cover your liabilities. Talk to an insurance professional to help you choose the best plan for your property.
10. Have an emergency fund:
Certain expenses will not be covered by your insurance. Ensure you have an emergency fund to cater for such. A fund of about 20% the value of your property is a good place to start.