First-time property investors are bound to make a few mistakes. Don’t fall into the same traps as other first-time landlords and pay close attention to these 6 common mistakes:
1. One-Dimensional Financing
Get to know the different types of financing at your disposal and start networking with lenders in each category.
2. Overestimating Cash Flow
There is a tendency for new investors to overestimate their rental property returns by underestimating expenses. Don’t ignore numbers like vacancy rate, repairs, maintenance, and property management. New investors often use best-case scenario rents in their calculations instead of worst-case rents.
3. Buying the Next Hot Spot
You’ve heard people say location, location, location. Listen to these people. 8% of your property’s performance depends on its location. Too many beginning investors try to find the next hot spot instead of investing in what has worked for the last 50 years.
4. Paying Too Much
This may sound like a no-brainer, but buyers overpay for properties all the time. The main reason why is they simply don’t do enough research.
You should know the neighbourhood you’re investing in inside and out. Especially if you’re buying a rental property for positive cash flow, you need to get the price right at the start. Paying too much for a property reduces your returns on investment.
5. Not Screening Tenants
Whether the tenant is new or old, you should vet them. Also, do your own inspection of the property, with minimal notice given to the tenants. You want to see how they keep the property on an average day, not after cleaning up for your visit.
6. Keeping Bad Records
One mistake new investors make is they don’t have their records in order. You should treat it like a business. Make sure all your records are organized, keep track of expenses, rental payments, repairs and maintenance. Save all receipts and any communication you have with tenants. Make sure you have records of the lease, addendums, and inventory forms.
Owning investment properties can be a lucrative, if done properly. There’s no substitute for experience, so you’ll have to learn by doing.