Are you investing in real estate? Here’s how to make the most of your prospecting and avoid mistakes with a promising rental properties prospect.
A rental property is an attractive investment opportunity for many. It’s a physical asset with tangible value, and for that reason it may seem “safer” than investing in stocks. But a bad rental property can be just as costly as a bad stock, especially if you stumble upon the many common mistakes that previous investors have.
The pitfalls of rental properties include vacant units, disruptive tenants, unexpected costs associated with the property, and liability concerns. Rentals can also be a time and money sink if you plan to upgrade the property.
But that doesn’t mean rental properties are without advantages. They can come with significant tax breaks if you do your research. And ideally, they serve as avenues for passive income. But to get to this level, you’ll need to do your due diligence and make the right business connections. Read on to learn what not to do when rental properties prospecting, and how you can avoid the common pitfalls.
You Don’t Do Your Research
There are a lot of factors that go into whether your rental properties prospects are sound investments. Don’t just look at the property and decide. You want to see all the paperwork related to the property: current lease agreements, current liens, mortgages, and so on. Depending on your area, you may look up some of these yourself rather than rely on the seller to provide them.
You aren’t just investing in the property, but the surrounding area. Remember that all real estate is local: if you aren’t familiar with the area, become acquainted or form a partnership with someone who is.
What’s equally important is to understand who the tenants will be for a rental property prospect and what they will need. If you own a rental property in a college town, it’s a safe bet your tenants will be students. These tenants will try to secure housing in certain parts of the year, most often in the late summer. You’ll also not want to market this type of property as a promising place for families to raise their children, or for seniors who prefer quiet living. Know the audience for your rental property and cater to it.
You Don’t Know Local Laws
As a prospective landlord, you will have a responsibility to ensure the property is habitable. But the exact definition of habitable will vary depending on where you are. Make sure you’re on the right side of local regulations for safety and environmental concerns. Don’t make the mistake of assuming the previous owner was up to code, especially if the building is old. This is where a good building inspector comes in.
Also, remember that there are laws that govern your choice of tenants. While it’s best to run background checks on all of your potential tenants, there are certain protected classes that you must consider when reviewing applications. Do some research into fair housing laws federally and locally. Not doing so can land you in serious and costly legal trouble.
You Don’t Prepare For The Worst
There are a lot of risks that come with acquiring rental properties prospects. Unexpected repairs and maintenance will come up, and can be costly. Tenants can create long-term problems if they cause disturbances or fail to pay their rent. You may find it difficult to fill vacancies for a period of time. Someone can get hurt on your property, and you may be liable.
You can mitigate most of these by keeping an emergency fund, doing up regular maintenance, hiring a property management firm, and running thorough checks on tenants. You’ll also want to thoroughly inspect the property and review associated paperwork before you buy. But regardless, you cannot prepare for every problem.
You Try To Do It Yourself
You may think you can handle every aspect of investment properties, from rental properties prospecting to closing to maintaining the property. But that can quickly become a full-time job, which makes your idea of passive income not so passive.
A common “do it yourself” method of rental properties prospecting is called driving for dollars. This is when investors drive around their neighborhood in search of properties for sale. It’s popular because it doesn’t include any upfront costs except your time and gas, and it gives you a look at the physical property and surrounding area. But this doesn’t allow you to take a thorough search of the property to spot potential problems. Even if you stumble upon an open house, sellers can mask issues that would devalue the property. Before you buy a property, enlist the help of trusted inspectors.
Before completing the closing process, a fresh set of eyes to look at the paperwork goes a long way. Forming partnerships with a lawyer, banker, and/or a tax professional can help.
Handling the maintenance on your property can take up much of your time and money, especially if you’re inexperienced. Let a professional do the work for you, and don’t go for the cheapest options. Otherwise you may need to perform more costly repairs further down the line.
Property management groups can help with maintaining the property after closing for a portion of the property’s income.
ProspectNow Can Help
Are you ready to make the most of your real estate prospecting? ProspectNow can help you. With a comprehensive property database with industry-leading data analytics, you’ll be ready to find the best properties in your area and get ahead of your competition. Check out the ROI calculator to see how much more money you could make with ProspectNow, and how many properties it predicts will sell soon. Then sign up for your three-day free trial to see what you’ve been missing.