Investing in one or more properties to rent out can be a good long-term investment. Real estate typically grows in value, and when you have tenants paying rent they are offsetting the cost of owning an investment property. But renting out property and being a landlord is not an easy task. If you want to be successful, you need to know what you're doing. If you're considering purchasing investment properties to rent out, avoid the following mistakes:
Neglecting to Consider Your Rental Property a Business
Your investment rental property can make you a lot of money in the long run, so it is extremely important to treat it like the business that it is. It is often recommended that you set up a limited liability company (LLC) as a form of ownership in order to protect yourself personally. You will also need to keep exact records of the income and expenses related to your property. Using a qualified CPA during tax season is also highly recommended for a landlord.
Not Having Money Set Aside for Maintenance
As a rental property owner, it is essential to have money set aside to maintain your rental property. You never know when an appliance will need to be replaced or when the roof will need to be repaired. If you're a landlord, you will be responsible for taking care of these things promptly, so always keep extra money on hand for emergencies.
You will also need to be prepared in the event that your rental property is vacant between tenants. Make sure that you have emergency funds on hand to cover the full cost of several months of the mortgage, insurance, and taxes, just in case you don't have any rental income coming in.
Failing to Understand Rental Laws
There are a number of state and federal laws about renting residential property. As a landlord, it is imperative that you know both the federal laws as well as the laws in the state where the property is located. Failure to understand the basics of the laws can result in costly legal issues if you end up violating a law.
Not Hiring a Property Management Company
If you're a busy professional with a full-time job, being a landlord may be a very difficult prospect. Same goes if you do not live near your rental property. As a landlord, one of the best things you can do is hire a property management services for your rental. The property management company will screen tenants, draw up leases, collect rent, and take care of all of the maintenance and repairs that your property needs.