Investing in rental properties is one of the most talked-about avenues for making money from real estate. This talk is not just hype; owning several rental properties does offer a sustainable pathway to a life of financial freedom and worry-free retirement.
However, the fact that investing in rental properties is profitable does not mean that owning a rental property is easy, says Fall River Management. Owners of rental properties have to see to a long list of tenant, maintenance, and financial issues in the day-to-day running of their properties.
There are always opportunities for a landlord to make mistakes that can harm the profits from their rental. What are some of these common errors? This post will discuss ten mistakes that will kill your rental property profits.
1. Investing in the wrong location
The volume of demand for your rental depends on the location of the investment. Before buying a property, ensure the area is viable as a potential investment location. Things to look out for are low crime rates, top-rated school districts, job opportunities, and public amenities. Failing to do these checks will kill your rental property profits.
2. Not investing in tenant-screening
As much as 50% of the problems landlords have with tenants can be averted by doing proper tenant-screening. Late payments, lease violations, and damage to the property are a few of the issues that happen when you fail to vet potential tenants. Tenant screening can help you detect if a would-be tenant has a criminal background, bad credit, or issues with previous landlords.
3. Failing to get a signed lease
The lease contains the terms for leasing your property to a tenant. By clearly outlining landlord and tenant roles, lease agreements minimize the risk of conflicts. During disputes, it serves as the reference document for resolving the issue. Without a lease, it is tough to govern tenants’ behavior or get redress for acts of misconduct.
4. Not taking a security deposit
When they pay a security deposit, tenants are more likely to look after your property. It is hard to get a tenant to pay for any damage to your rental after they have vacated the property. The only way to get compensation for things like unpaid rent, lease breaks, or damage is by getting the tenant to pay a security deposit at the beginning of the lease.
5. Failing to prioritize maintenance
Maintaining your rental property helps you save and make money. You save money when you do preventive maintenance because you proactively detect and solve problems before they become major costs. Proper maintenance ensures that your tenants are comfortable. If tenants are happy, they will renew their lease. That allows you to cut costs while ensuring future income.
6. Doing unnecessary renovations
Putting money into home improvements that don’t help you reduce costs or attract higher-paying tenants to the rental is a waste of money. The impact of such decisions is that your expenses will increase while your income remains the same. Only do improvement projects if there is a direct connection between them and an improved bottom line.
7. Overlooking the value of inspections
Your lease agreement should include a clause for periodic inspections. To ensure that these inspections do not upset your tenants, make them coincide with your seasonal maintenance. You also want to conduct move-in and move-out inspections at the start and end of the lease. Bake these inspections into the lease agreement to avoid losing money on your rental.
8. No or inadequate insurance
Problems are inevitable, but having the right insurance can minimize their impact. Some of the unexpected troubles you may have in a rental property are fires, floods, accidents, injuries, lawsuits, and loss of income due to unexpected circumstances. You can guard against all these by having the right kind of insurance. It is also essential to require renter’s insurance from would-be tenants.
9. Not taking advantage of tax deductions
Taking advantage of tax deductions is a major strategy for boosting the profits from your rental property. You could be leaving money on the floor if you are missing competent professionals to guide you on how to get these tax credits. Tax deductions apply to a wide range of expenses in the everyday operations of your rental: interest payments, depreciation, insurance premiums, professional fees, etc.
Trying to self-manage the rental
Overseeing the operations of a rental is as time-consuming and tasking as a regular job. When managing your rentals yourself, there is a limit to how many properties you can own. Furthermore, you may only invest locally if you self-manage your investment properties. Failing to hire a competent property manager will limit your ability to grow as an investor.
To sum up, these are just a few mistakes you should avoid if you want to protect the profits from your rental properties.
