Top Rental Property Investment Mistakes

Many who are just getting into real estate investing do so through a Real Estate Investment Trust (REIT) because they know how much they don’t yet know and want to gain some experience without too much risk. That’s a perfectly reasonable strategy, but it is possible for new rental real estate investors to enjoy the benefits of owning investment properties without making costly mistakes if they know what the common pitfalls are. 

Searching for an experienced partner to manage your rental property? Palmetto State Properties is known for their ability to manage, market and maintain rental properties in the greater Charleston, SC area.

Get in touch today to find out how we can help.

Lack of a Cohesive Strategy

Anything worth doing is worth planning for. Having a strategy is particularly important in real estate investing. That strategy must answer such basic questions as:

• Are you interested in buying value add or turnkey properties?
• Are you buying to fix and flip or to hold and rent?
• Will you buy single family or multifamily properties or both?
• Is geographic diversity important or do you prefer to concentrate your real estate purchases in a particular area?
• Do you plan to manage your investment properties yourself or hire a property manager?

Not defining a strategy before you begin acquiring properties is, at best, a scattershot approach that may not meet your overall investment objectives or produce the financial results you are seeking.

Inadequate Research

Successful real estate investing requires thorough due diligence as the basis for decision making. What you don’t know about a property, or a community, or potential renters can put a serious dent in your rental income and the value of your investment properties.

For example, if you don’t do your homework, you could find that you’re buying a residential property in an area about to undergo a zoning change that will soon bring commercial businesses and increased traffic. Or the neighborhood could be prone to flooding at certain times of year.

There may be current problems with the property itself that you’re not aware of, such as asbestos, radon, or termite problems, or foundation or roof issues, or any number of other things that could be costly to remediate. 

And what does the population of potential renters in the area look like? Are they students, or retirees, or young singles, or families with children? What is most important to them? Reliable public transportation? Good schools? Shopping within walking distance? A nearby house of worship? The needs and expectations of different types of renters can be very different.

Flying Solo

Many new real estate investors fail to recognize the need for professional advice and assistance from real estate agents, home inspectors, contractors, real estate attorneys, insurance experts, and others. Without a reliable team of professionals, you could be operating in the blind regarding problems with the property, the neighborhood, the terms of the deal, and the costs you may be facing down the road. 

Paying Too Much

Investors who skimp on research and make purchase decisions without professional input can easily pay too much for an investment property. It’s crucial to consider the prices paid recently for comparable properties in the area. Never assume that a property’s asking price is a true reflection of its actual current market value. And try not to become emotionally invested in a property, as you may pay more for it than you should. 

It’s easy to buy into a vision of what it would mean to own a particular property and not realize that there are other, less expensive, properties that would be just as suitable. The best way to avoid paying too much is to establish a budget based on your available capital and your ROI criteria and stick to it.

Underestimating Operating Costs

Unfortunately, it’s easy to overlook some of the many expenses that property owners, especially owners of rental properties, can incur, which can seriously cut into expected profits. Again, this is largely the result of not doing the necessary research and/or not seeking the advice of professionals. Determining the affordability of a property and any expectations for its income and profit potential must be grounded in careful ROI calculations. Those calculations will be highly suspect without a comprehensive, realistic list of the regular and potential unforeseen expenses of operating and maintaining a rental property. 

Don’t hesitate to ask other rental property owners in the area what you can expect in the way of expenses. Most successful people like being asked for their opinions and expertise.  Local property managers should also be willing and able to provide information about operating expenses, especially if they view you as a potential source of future property management business or referrals. Utility companies can tell you what the current or previous owner’s bills have looked like. In addition to fixed expenses such as taxes, mortgage payments, property management fees, and utilities, remember to include variable expenses like the costs associated with vacancies, repairs, and capital expenditures.

Understanding known pitfalls like the ones discussed in this article is the only surefire way to avoid falling into them. 

 

Searching for an experienced partner to manage your rental property? Palmetto State Properties is known for their ability to manage, market and maintain rental properties in the greater Charleston, SC area.

Get in touch today to find out how we can help.