5 Common Rental Property Investment Mistakes and How to Avoid Them
Investing in rental properties is a sure way to build your wealth over time. For most people, it’s also an amazing retirement plan.
However, this investment strategy isn’t foolproof. If you invest in a money pit, go over your budget, or fail to do your homework, it could very well lead to your financial downfall.
There are countless rental property investment mistakes that could have you wishing you stuck to your day job. We want to help you avoid them. Keep reading for five common mistakes made by rental property investors and how to avoid them.
1. Not Getting Pre-Approved for Your Loan
First, it’s important to know your loan eligibility before you start shopping for a big-ticket item. It doesn’t matter if we’re talking about cars, personal homes, or investment properties.
Talk to your bank to get pre-approved for a commercial loan before you start shopping for properties. Otherwise, you might go to place an offer on a building, only to get rejected by your lender.
2. Ignoring Your Budget
Common rental property investment mistakes often occur because people get impulsive. They find a property that piques their interest, they start dreaming, and they make rash decisions.
While you should never turn down the perfect property, you must stay within your budget to avoid going under. Make sure you know exactly how much you can afford, including property management expenses like taxes, utilities, maintenance, renovations, etc.
3. Not Thoroughly Inspecting the Property
When investing in rental property, never skimp on the inspection. No matter how old or new the building is, you need to know exactly what you’re getting into. For example, if the building has existing problems with the foundation, roof, or mold, those are things you’ll inherit with your purchase.
These types of repairs are extremely costly, which will eat into your budget, and possibly, prevent you from renting the building out to tenants.
4. Not Calculating Your ROI
One of the biggest rental property investment mistakes is not having a property investment strategy. You can’t go in blind, buy a property, and hope for the best. You need to understand your costs versus your potential income (your ROI).
For example, if you’re investing in a single-family home, what will your monthly loan payment be? What will you be able to charge for rent? Where does that leave you in terms of revenue?
5. Getting Into the Wrong Type of Property Investing
There are many types of property available to investors. There are single-family homes, apartment complexes, business offices, medical facilities, retail stores, industrial complexes, etc. One of the most common rental property investment mistakes is getting into a property that isn’t right for the owner.
Before you make an offer on a rental unit, verify your business goals in the context of what your role will be as a landlord. For instance, if you don’t want to deal with commercial laws and coding issues, a residential property investment might be more appropriate.
Want to Avoid Common Rental Property Investment Mistakes?
As you can see, there are a lot of rental property investment mistakes that are easy to make, particularly for new investors. However, by taking your time, doing your homework, and sticking to your budget, you can avoid many of these issues.
And if you’re looking for more real estate advice, investment guidance, or professional inspiration, stick around. Look through the rest of our blog articles to find more helpful information.