It’s only natural that you’d want to see significant ROI when investing in your first rental property. After all, if all goes according to plan, you stand to rake in a sizable amount of passive income each month. However, even if the property in question is well-maintained and located in a popular area, success in such endeavors is by no means guaranteed. There are a number of reasons for which first-time property owners have trouble with their first investments, and by taking the following tips to heart, you can decrease your likelihood of encountering a wide range of problems.
Invest in a REIT
Upon seeing the above abbreviation, many first-time investors are liable to ask themselves, “What is an REIT?” In essence, a real estate investment trust (REIT) is a company that owns and operates real estate. Operating in much the same manner as a mutual fund, a REIT involves a pool of investors putting in money and enjoying a share of the profits.
When investing in a REIT, you won’t be the one responsible for researching or locating prospective properties. Instead, this task will be handled by people who have ample experience managing and investing in commercial real estate and rental properties. So, if you’re pressed for time or resources, a REIT may be the perfect vehicle through which to get into property investment.
Have the Property Inspected by Professionals
Should you decide to go it alone, take care to never invest in a property that hasn’t been inspected by seasoned professionals. No matter how well-maintained a property appears to be on the surface, you never know what types of problems may be lurking just out of sight. So, before committing to purchase a rental property, have the entire place meticulously examined by knowledgeable building inspectors, plumbers and electricians. Depending on what these inspections turn up, you may find yourself in possession of additional bargaining power. While this step may strike you as cumbersome – particularly with newer properties – it ultimately stands to save you from sinking a massive amount of money into a lemon.
Do Some Research on the Area
As many real estate pros can attest, location is often every bit as important as the general condition of a property. So, before proceeding to invest in a rental property, do some research on the area in which it’s based. If the area in question is considered unpopular and local property owners are unable to command decent rents, you may want to think twice before going through with the purchase.
Properly Screen Prospective Tenants
No matter how eager prospective tenants are to occupy your first rental property, their excitement won’t amount to much if they’re unable to keep up with the rent. Additionally, regardless of how dependable a potential renter comes off over the phone or in person, you’d do well to put them through a screening process. This entails requiring them to submit an application and confirming that they earn enough income to comfortably afford rent.
You should also run credit and background checks on all prospective tenants. For example, if an applicant has maxed out various credit cards and is carrying a staggering amount of debt, they may not be the safest choice. By extension, if a background check reveals a history of evictions or an extensive criminal record, it’s probably best to move on to other applicants. Provided an applicant isn’t a first-time renter, make a point of contacting their previous landlords and inquiring about what type of tenant they were.
This may strike you as a lot of work – particularly if an applicant makes a great first impression. However, failing to properly screen prospective renters stand to land you in a variety of uncomfortable situations down the line, especially if you live in an area in which evicting tenants is extraordinarily burdensome.
A rental property is far from a small investment. That being the case, it makes perfect sense for a first-time investor to actively desire the highest possible ROI. While expecting a “sure thing” when investing in your first rental property is ill-advised, there are numerous steps you can take to minimize your chances of failure. In the interest of maximizing your odds of turning a handsome profit, put the tips discussed above to good use.