Not every real estate investment is going to be profitable. There are different steps to take to help improve the odds of turning a profit or gaining a reliable stream of income from an apartment or house rental.
Here are a few of the steps to get you started.
Produce a Sensible ROI Analysis
Real estate investing needs to start with a realistic breakdown of all the income and expenses that you’re likely to incur along the way.
For instance, many first-time property investors either forget, ignore or underestimate the lost income from vacant rentals and unrecovered property damage. They also often fail to consider the expense of replacement appliances, redecorating, and repairs and maintenance too.
When you do not include a realistic forecast of all expenses, a forecasted (or imagined) profit can easily turn into a negative cashflow – one that requires resale to come out whole again.
Pre-Tenant Vetting
If you follow the tales of woe from landlords who have rented to bad tenants, you’ll see similar stories that come up again and again. When looking a little closer at the horror stories, it’s typically the case that either no vetting was carried out or it was not thorough enough.
So, how can you vet someone well enough to ensure that you do not end up with the tenants from hell? Running a credit report is a good first step. You also want to check their rental history with past landlords to see if there were problems with rent arrears, disputes with other tenants (or the landlord) or if they damaged property while there. Consider whether they are employed or have other means to support themselves.
Also, think about offering a short-term lease initially so that you can legally ask them to leave if you need to. Then offer a new lease or extend it.
Get a Home Inspection Before Buying for Letting Out
Get a thorough CLASS Home Inspection of any prospective property before making a deal. Any offer should be made contingent on an inspection not finding any significant issues that would be costly to resolve.
An experienced inspector knows what they’re looking for when examining a property. There are tell-tale signs of problems which they know to look for during their walkaround. A layperson doesn’t have the same insight or experience to spot every potential problem, so the cost of an inspection is well worth it.
Make sure that the inspector can provide a digital version of their report. This way, if you choose to revisit the property to examine the issues that they found, the details will be on your smartphone or tablet.
The problems that property investors face is often borne out of a lack of experience with rental properties. This is especially the case with couples renting out their former family home when moving to a smaller property. However, when you avoid the common mistakes, a positive ROI is far more likely with free cashflow too.
Add Comment