Many individuals seek out additional revenue streams to line their savings accounts with greater financial resources. Perhaps they are hoping to spend that money on a new house or to travel more. Maybe they are concerned about retiring comfortably at the age they hope to stop working. Whatever the motivation for making more money, there are plenty of ways to do so in the free market.
One investment strategy that has yielded positive results for many ambitious individuals is owning rental property. The rental industry is very strong in 2024, as many of the younger generations are hesitant to take on the burden of a long-term mortgage. Renting offers flexibility that these populations tend to crave, so investors who own rental units can benefit.
If you want to take advantage of this trend, then becoming a rental property investor could be your path to greater wealth. However, there are plenty of ways to mess up this process. Here are some common mistakes that must be avoided to achieve financial success.
Neglecting Due Diligence When Buying the Property
The definition of an investment is spending money to make more money through returns. If you have a positive ROI, then the investment was somewhat successful. However, overspending on the investment will make it harder to generate profit. When buying a rental property, it is easy to overspend if you do not research the property itself and the local market. You need to understand how to value a rental property to ensure you are getting a good deal. What prices are similar properties selling for? How much will it cost to operate the property, including taxes, insurance, mortgage payments, maintenance, and utilities? How does that compare to the rental rate you will charge? If you neglect the research phase, you could make a bad investment that is difficult to generate positive returns on.
Ignoring the Help of Real Estate Agents
There are many ways to get involved in the real estate industry, and becoming an agent is one of them. These professionals understand the ins and outs of their local markets and are always the first to hear about properties being put up for sale. They will be a valuable resource for your rental property endeavors. Working with a real estate agent ensures you will learn about upcoming properties as soon as possible rather than waiting until they are listed on a site like Zillow. Additionally, these agents are often connected to other professionals in the industry, such as contractors, who may become useful during other parts of the property ownership process.
Underestimating the Work it Takes to Run the Property
Rental properties are not a form of passive income, at least not in the beginning. There are plenty of logistical details that must be managed regularly to bring in tenants, collect payments, satisfy maintenance requests, clean the property, address upgrade needs, and accomplish other necessary tasks. In some cases, investors get into this venture without realizing how much work is required. You could easily become overwhelmed with the responsibilities, especially if this investment is supplementing income from your primary career. If you want the income to be as close to passive as possible, then you will have to hire a property management firm, though that will cut into your profits.
Overlooking the Client Experience
Just because you have a rental property with a tenant does not mean profits are guaranteed. What happens if the tenant suddenly becomes dissatisfied and leaves, resulting in a vacant property that still has ongoing expenses? This is why it is your job to prioritize the client experience for your property. Do you respond quickly to their concerns? Is the property taken care of so that it is clean and aesthetically pleasing for the tenant? Are their extra services included in the price of rent, such as Wi-fi, off-street parking, or garbage removal to create a better experience? Is there a simple client-owner hub for communications? Ensuring that the client has a positive experience will reduce the chances of vacancy and yield positive reviews that can bring in more business in the future.
Not Investing in Upgrades
Tenant needs can change quickly. A few years ago, a home office was not as important of a consideration as it is now with a growing remote workforce. If you leave the property as is and fail to update it, then tenants may be hard to come by in the future. If you are generating profits from rental income, then you should use some of this money to upgrade the space, whether that means new appliances, energy-efficient window replacements, or improved HVAC systems that lower utility costs.
Avoid These Mistakes for a Better Chance at Profits
Owning rental properties is not easy. If you do not know what you are doing, it can easily become a burden rather than a reliable income stream. Do your research when evaluating properties, seek the help of real estate agents, know what work is required to run the property, prioritize the client experience, and invest in upgrades every once in a while.