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No matter how confident you are in a house, condo or apartment building, it’s important to understand that no rental property is guaranteed to generate a healthy return on your investment. In fact, some properties may ultimately wind up losing you money and consistently draining your resources. That being the case, it pays to do your homework before sinking capital into a rental property. Fledgling investors looking to play it safe will be well-served by the following precautions.
Carefully Inspect Properties
Investing in a rental property that hasn’t undergone a thorough inspection is never a good idea. Even if a property is located in a popular area, you still stand to lose money if major problems are present. With this in mind, make sure to have any property you wish to purchase meticulously inspected by knowledgeable building inspectors, plumbers and electricians. This will ensure that you’re given an accurate rundown of a property’s overall condition, which will enable you to make an informed decision regarding whether or not to buy. Such caution is particularly important when investing in real estate with retirement funds.
Read Up on Fair Housing Laws
Before reviewing applications from prospective renters, you’ll need to familiarize yourself with fair housing laws. In essence, these laws prevent property owners from discriminating against tenants on the basis of gender, race, religion and various other factors. While many of these laws are no-brainers, others aren’t as obvious as you may think. Furthermore, in addition to federal housing laws, there are housing laws that are unique to specific states.
Failure to become well-versed in housing laws may result in inadvertent violation of these laws, which can land you in legal hot water and place you on the receiving end of costly lawsuits. So, even if you’re not a fan of studying, it’s in every landlord’s best interest to form a solid understanding of fair housing laws.
Keep Emergency Maintenance Funds on Hand
No matter how meticulously a property is maintained or how recently it was built, the occasional problem is bound to rear its head. In some instances, problems come about as a result of renter negligence or poor maintenance. Other times, it’s just plain bad luck. Regardless of the reason property issues emerge, it’s imperative that they be remedied posthaste. The longer certain problems are able to linger, the more pressing they’re likely to become.
This is why it pays to have a robust emergency fund on hand. If a large issue arises and you lack the money to fix it, you’re liable to find yourself in court – especially if the issue in question impacts a property’s livability. As such, make a point of placing a portion of the income you collect from rent into an emergency fund each month. Even if large-scale issues are a rare occurrence, you’ll be glad you set aside sufficient funds whenever a problem surfaces.
Keep Your Relationship with Tenants Friendly but Business-Like
Striking the right balance between personable and professional can be challenging when dealing with tenants. After all, you want them to like and respect you, but at the same time, you don’t want them thinking you’re a pushover. Needless to say, getting too chummy with tenants can make things exceptionally awkward whenever someone’s late with rent or unable to pay rent altogether.
With this in mind, make an effort to avoid becoming too familiar with tenants while also making yourself approachable. Your tenants should feel comfortable coming to you with a variety of property issues, but they should understand that at the end of the day, this is a business relationship. You uphold your end of the bargain by meticulously maintaining the property, and they uphold theirs by paying rent in a timely manner.
Smart rental property investments have the power to generate a small fortune in income every month. However, this doesn’t mean that every acquisition of a rental property will prove equally beneficial. Jumping into rental property ownership unprepared may actually cost you a lot more than it stands to make you. Fortunately, taking the time to educate yourself on rental properties stands to save you a considerable amount of time, money and stress. As such, new investors would do well to take the previously discussed precautions to heart.