Many years ago, I mentioned to my father that I wanted to buy a piece of rental property. “Why would you want to do that?” he replied. “It ain’t all gravy, you know.” Intuitively I knew what he meant, but it took me years to realize the wisdom in his words. With experience I learned to avoid the pitfalls that can come with owning real estate, and with a bit of planning, you can get to the gravy quicker, with fewer setbacks.
Play the Long Game
In most cases, an initial real estate investment takes years or decades to accumulate to a meaningful amount. When you purchase a rental property, think of it like a piggy bank — but your tenants make the deposits. Instead of depositing cash, the tenants gradually increase your equity in the property, month after month, by paying down your loan. Once the mortgage is paid in full, those rental payments turn into monthly income.
It takes a long time to fill up the piggy bank. Just as a retirement planner would advise you, the sooner you start building equity, the better. Although equity does build monthly, first-time investors often need 10 to 15 years or more to bring a rental property to the point of generating material income.
I have heard many times that you make your money in real estate on the front end. Do your research and be patient. Wait to find a property that you like and terms that will allow for the returns you hope to gain. Overpaying delays income potential and reduces returns.
Location. Location. Location.
Location is vital for investment properties, just like any other real estate. I recommend choosing a property that is conveniently located, both for you and your potential tenants. For my own rental units, I prefer properties close to good schools and hospitals that are also close to my home.
Make sure you consider necessary repairs and updates when evaluating a potential property. Maintenance can quickly become a burden to investment owners. My first rental property was built in the 1980s, not too old for this area, but new enough to have modern wiring and plumbing. Hire a pro to thoroughly inspect the property, ensuring that all major systems like plumbing, electrical, foundation, roof and HVAC are in good working order. You don’t want to buy someone else’s problems.
If you are considering a multi-family property, pay attention to how the property is configured. I prefer each unit to have a separate utility meter, for several reasons. With a single meter on a multi-unit property, utility cost is typically incurred by the landlord and passed to the tenant through the predetermined rent. I once owned a quad-plex that had a single water meter. On multiple occasions, the tenants failed to report water leaks to me, which I discovered only after receiving inflated water bills. They weren’t paying the water bill themselves so they had no incentive to report a leak.
Also, curb appeal matters. Properties that were originally built to be multi-family or were designed by an architect to allow for multiple units are more appealing to potential renters and easier to keep filled. Look for well balanced properties that don’t look like they’ve been modified multiple times.
Listen to Intuition
I’m a big believer in following your intuition. If it doesn’t feel right, don’t do it. I once passed on a deal on the last day of due diligence because it was keeping me up at night, and I’ve never regretted the decision. If you are getting close to closing and you can’t sleep, it may be prudent to just walk away. It’s a big decision, and you want to feel comfortable and confident in your investment.
Hire a Knowledgeable Agent
Most important, seek advice from a licensed real estate agent who has experience as a landlord and has your best interests in mind. Any agent can sell you a property, but partnering with someone who has owned investment property will help ensure you end up with the right property for you.
If you have any questions about becoming a landlord or you would like to purchase investment property, call Boon Bickerstaff at 706-718-0439 or [email protected].