Owning rental property is great. A buy and hold strategy has many benefits, and the passive income it can provide can certainly put individuals right where they want to be for retiring. Of course, there can be a significant learning curve that can leave new real estate investors and landlords exposed to risk. So what are the most common factors that trip them up and threaten financial disaster?
Taking Too Long To Get Units Rent-Ready
Taking too long to go from acquisition to bringing in income can be disastrous. You don’t want to go broke before you’ve even landed your first tenant. Every day is money. Even without loan payments, you are accruing property taxes and insurance, and your ROI is declining while you are missing out on tenants. If you’re in a Midwest market that has rough winters, this is especially critical when those months are coming up.
Allowing Extended Vacancy
The same risks as above also apply to extended vacancy periods while you own the property. This can happen any time you turn tenants. This loss of income and extra risk of exposure to damage, vandalism, and squatters during vacant periods may seem palatable if you have just one unit. Wait till you have 10 (or 100) sitting empty. Experienced landlords leverage the best technology and systems to hone in and make sure rental units are rent-ready again in just a few days. They also make sure they have a constant pipeline of renters — and often a waiting list — so there are as close to zero down days as possible.
Failing to Verify What You Can Rent for in Advance
Never, never, ever just take someone’s word for what a rental may rent for. Never. Not the seller and not the listing agent. Always do your own research. For vacant units, pull comps in the neighborhood, talk to people, run ads, and test the market. The market will always let you know whether you are priced too high or too low.
Over-Rehabbing the Property
Over-improvements will bankrupt you and will put you in a negative equity position. Avoid this urge. Make your units nice, but don’t overdo it and rehab the property to attract a $1,500 a month tenant when no one in the neighborhood is paying more than $800 per month.
Watch out for these pitfalls and you’ll be well ahead of the curve.
Ideas by Sterling White