Crucial Steps to Take Before Purchasing Your First Rental Property
Getting your hands on a good rental property can set the stage for decades of passive income generation. However, if you’ve never owned a rental property, there are a number of crucial steps you’ll need to take in advance of making an investment of this magnitude. Purchasing your first rental property in haste is liable to result in long-term losses and copious regret. As such, anyone preparing to enter the rental property game is strongly advised to attend to the following tasks.
Make Sure the Property is Professionally Inspected
Purchasing a rental property that hasn’t undergone a professional inspection is practically asking for trouble. No matter how meticulously maintained a property appears to be, there could be serious problems lurking beneath the surface – problems that you, as a non-professional, are not qualified to identify. With this in mind, make a pre-purchase inspection – or multiple pre-purchase inspections – a prerequisite for any property purchase. You may even find that such inspections are required to have the property insured.
Professional property inspectors will be able to identify a host of problems that the rest of us would never think to look for, thus ensuring that you don’t make an uninformed investment decision. These inspections are crucial to determining how much work a property needs done. After all, the last thing you want is to become aware of necessary – and expensive – repairs or renovations long after the sale has gone through.
Regardless of how much a certain deal means to you, you should never allow a seller to talk you out of inspections. Even if this isn’t an effort to conceal issues with the property, such behavior is highly suspicious, and if a seller is adamant that inspections can’t take place, you’d be wise to simply walk away from the deal and focus your attention on other investment opportunities.
Make Sure the Property is Located in a Profitable Area
It isn’t hard to see why so many real estate investors regard location as vitally important. Properties located in areas with robust local economies and high demand for housing tend to command higher sale prices and rental rates than properties found in areas in which demand is on the wane. So, before proceeding to invest in your first rental, make sure to do a little bit of research into its location. You’d also do well to look into the best states for real estate investing. Said research should entail a deep dive into the area’s housing prices, rental rates, crime rates, and local economy, as these factors should give you a pretty good idea of how much rental income the property will be able to generate.
Calculate the Cost of Property Management
If you’re looking to invest in a single-family property, management of the said property is unlikely to prove particularly challenging or time-consuming. However, if you have your sights set on a multi-family property that houses dozens – if not hundreds – of units, you’re going to have your work cut out for you. For example, properties of this size often require a considerable amount of upkeep and full-time maintenance personnel. Needless to say, in these situations, management costs stand to eat up a considerable portion of the income the property generates.
So, prior to purchasing your first rental, carefully calculate the cost of employing a maintenance staff and weigh it against how much income you expect to make through the property each month. Additionally, if you’re not keen on the idea of making property management your full-time job, calculate the cost of hiring a professional property manager. When it comes to apartment buildings, condo complexes, and other large rental properties, a property manager is essential to ensuring good tenant communications, prompt payment processing, and efficient delegation of maintenance tasks.
While a good rental property can serve as a consistent source of passive income for decades, not every property you confirm upon will be an equally profitable investment. Considering how much capital is needed to purchase a rental property, buyer’s remorse is the absolute last thing you want to be feeling in the wake of such a purchase. Fortunately, there are numerous steps you can take to minimize your chances of making an unwise investment. Undertaking the tasks outlined above before purchasing your first rental can help ensure that you make an informed purchasing decision.