Owning a revenue property can be a great way to create financial security. Buying a house or small multi-unit building has lots of advantages, including monthly rent income, property value appreciation, tax deductions and the ability to use the bank’s money to make more money for yourself.
However, you have to invest in revenue property with your eyes wide open. Here are some potentially expensive mistakes to avoid:
- Unwittingly breaking a law. Before you buy, do some research. Make sure you understand landlord laws, your responsibilities and liabilities, and the ins and outs of leases.
- Not having enough funds to cover unexpected expenses. What if your property sits vacant for a few months? Will you have enough to cover your mortgage payments? What if you suddenly need a new roof or furnace? It’s wise, if possible, to keep an emergency fund of about 10% of the value of the property to carry you through the tough times.
- Expecting too much. If you expect to get rich quick, you may be tempted to set the rent too high and lose your tenants. Research comparables and be reasonable.
- Becoming a slave to the property. Decide how much your time means to you. If your revenue property becomes a second full time job, is it really worth it? Factor in the cost of a property management company, if necessary.
- Not checking out the property adequately. Having the property professionally inspected can help avoid unexpected expenses.
- Not checking out tenants adequately. Ask for references (especially their past landlords) and follow them up. Run credit checks. If applicable, drive by the prospect’s current property and see how well it’s cared for.
One way to help make things go more smoothly is to join your local landlord association. These groups can update you on laws, supply sample lease agreements, recommend suppliers, etc. If you’d like some help analyzing your financial ability to invest in a revenue property, contact us today!