That Can Sink First-Time Investors’ Rental Profits
You just bought an investment property and you are already capitalizing on your future rental profits. This is great but these profits may simply vanish in thin air if you make one of the following mistakes:
1. Inadequately screening tenants
It’s important to screen potential tenants thoroughly to ensure they have a good financial history and are able to pay rent on time. Failure to do so can result in lost income from unpaid rent and the costs associated with eviction. Inadequate tenant screening comes with other financial implications as well, including expensive repairs, increased insurance premiums, and decreased property value. Take the time to find high-quality tenants and, your leases will be much more profitable in the long run.
2. Ignoring property maintenance
Landlords should proactively handle any property maintenance that may be needed and budget their finance correctly to do so. When landlords do not have sufficient funds set aside to cover maintenance and repair costs it can lead to damages that decrease the value of their investment property and potentially sink their rental property profits as tenants may refuse to pay the rent or simply move out. To avoid costly surprises and frustrated tenants, you might want to consider the 1% rule. i.e. reserving 1% of the total property value for maintenance expenses.
3. Setting the wrong rental price
It is stating the obvious, that when rental prices are too low, housing providers will not be able to cover their expenses and earn a profit. On the other hand, setting rent prices too high can make the property difficult to rent out and lead to longer vacancy periods.
4. Not having adequate property insurance
Sufficient insurance coverage can protect rental properties in case of accidents, natural disasters, and other losses. Insurance can cover risks including malicious or intentional damage to the property by the tenant or their guests, loss of income if a tenant defaults on rent payments, and liability for a claim against you by a tenant. Forgoing comprehensive landlord insurance can result in significant financial impacts, where owners may be forced to pay out of pocket. Therefore, owners of rental properties should review their insurance coverage and consider adding policies that might make sense for their property, such as protections for rent loss, wildfires, earthquakes, and flooding.
5. Failing to plan for vacancies
Owners of investment properties must plan for losses they will incur from vacancies. It’s wise to set aside funds to cover the loss of rent during a vacancy as well as the cost of marketing the property to attract potential tenants.
To conclude buying an investment property is great, taking good care of it is a necessary evil to maximize your rental profits, and when the time will come to resale your property for top dollars.