Real Estate Blog

The Dos and Don’ts of Investing in Rental Properties

Earning a passive income via rental properties is a pretty attractive proposition. And if you can afford to get started in rental properties (come up with the down payment, qualify for loan approval, and make mortgage payments until you find tenants) there’s no reason not to purchase more property and seek out renters to pay the costs for you and put a little money in your pocket in the process. However, there are some things you’ll need to know before you get started in order to make sure your plan goes off without a hitch. Here are a few dos and don’ts to use as guidelines.

1. Find fixer-uppers in good neighborhoods. You might not want to try to rent out a property in an area full of million-dollar homes; the odds you’ll find suitable renters in such locations are slim. Still, it does pay to seek out properties in neighborhoods that feature low crime rates and high incomes. Choosing a property that you can fix up should help you to save some money since real estate in up-and-coming areas tends to be at a premium. The payoff will all be worth it if you do it right.
2. Hire a management company. If you can barely manage your own home, you might not have the first clue how to go about dealing with tenants. If you’re earning a considerable amount from your rental properties, you might want to consider hiring a management company to take care of collecting the rent and seeing to tenant concerns.
3. Understand rental laws. Every state has different laws pertaining to the rights of renters versus property owners, and you want to make sure you’re on the right side of things. At the very least you need to address common issues like contracts with tenants and insurance on the property. But there could be all kinds of laws you don’t even know about, so it pays to do some research to make sure that you are protected by the law.

1. Buy without inspection. It can be tempting to purchase a prospective rental property on the cheap through foreclosure and/or auction, but any time you have to buy without an inspection or the possibility of recourse for undisclosed damages (banks sell properties “as is”), you could be shooting yourself in the foot. You may pay a bit more for private real estate sales, but you’ll either know what you’re getting into or you can seek remuneration from previous owners.
2. Pay when you don’t have to. Hiring a management company is useful if you have dozens of rental properties under your belt or you don’t have the first idea how to collect rent and take care of leaky pipes and drafty doorways. But if you’re relatively handy and you’re only dealing with a couple of rentals, a duplex that you live in, or a granny flat, for example, there’s no reason to shell out major money for tasks you can manage on your own.
3. Be an absentee landlord. This is not unheard of, by any means, but it’s probably not the best idea unless you plan to frequent the area where your rental property is for other reasons. As an absentee landlord you have limited abilities to keep tabs on your property, and you may have trouble keeping up with requests for maintenance, repairs, and the like. Although you may want to strike while the iron is hot and take advantage of American real estate investments is specific states (like Florida), this move won’t do you much good if you’re ill-equipped to manage your investments from afar.

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