Every year, there seems to be some sort of money-making trend going on that people will dive deep into to earn additional income, only for it to fizzle out a few months to a year later. At one point everyone was trying to become an Uber or Lyft driver, and despite it still being a pretty lucrative side hustle for people, there’s definitely not as many drivers now as it was when it first came out. The key to earning additional income is to set your sights on earning passive additional income.
The best way to earn additional income is going to be in investing. One of the most popular investments is in rental properties. Investing in rental properties is something that has been around for a very long time but since the emergence of sites like Airbnb and Vrbo, it has popularized the vacation rental industry, causing more and more homeowners to turn their property into a vacation rental.
It’s a good idea, in theory, but the only problem with turning a property you already have into a vacation rental is that people jump in headfirst without any knowledge about rental investing. Everything from not having the right kind of insurance and meeting legal obligations to not weighing the risk with the reward and unexpected costs, those initial costs could be more than you can handle, especially with repairs, renovations, and home decor.
However, buying a property and converting it into a rental property could prove to be just as damaging if you go about it blindly as well. So what do you do if you want to start investing in a rental property but aren’t exactly sure how to go about it? Learn from the mistakes of others before you; do your due diligence to learn as much as you can about rental investing as you can.
To help you get your rental property investment journey started, we’ll take the back road by not telling you what to do but what NOT to do. If you can avoid these mistakes, knowing what you need to do will fall right into place.
Mistakes to Avoid When Investing in a Rental Property
Investing in a Property You’re Unsure About
Don’t get so caught up in the hype of being a rental property owner that you ignore your intuition and any “gut feelings” you may have about a property you’re thinking about investing in. You may have found a property you absolutely love but notice a few stains on the ceiling in a couple of rooms… Whenever you see stains on the wall or ceiling, it’s a direct indicator that there is a leak somewhere, more than likely on the property’s roof.
Not only is a roof repair or replacement expensive, but it could also reveal that the property has a bad mold infestation due to the leak not having been repaired for so long.
This is an unexpected expense to be wary of. If you notice things in a property you’re considering investing in, do not put down any money until you know exactly what’s going on with the property and you feel completely at peace with investing in it.
Not Checking All Your Financing Options
When it comes to investing in a rental property, you’re more than likely going to need a rental loan to acquire the property, unless you’re just sitting on thousands and thousands of dollars to where you can pay in cash.
There are going to be lots of financing options available to you but you can’t just go with the first one you see. You have to consider the amount of money you have for a down payment, the interest rates of the different loans, and the loan terms. To help narrow down your financing options, look only for a direct lender or a specialized rental lender.
Buying in a Depreciating Market
It’s pretty safe to say that location matters in the field of real estate. The last thing you want to do is invest in a rental property in a depreciating market, and the only way you’re going to do this is by not doing your due diligence to research the areas you want to potentially invest in.
Buying a rental in a depreciating area will make it practically impossible for you to profit off your investment. You’ll have to decrease your rent asking price, which will cause you to lose equity. Conduct proper market research and invest in a property that’s in a good school district, has a low crime rate, has access to public transportation and is walkable, and is close to entertainment.
You want to convenience your renters, not inconvenience them… These factors are what’s going to bring you the big bucks!
As someone new to this business venture, don’t attempt this on your own, solicit the help of an expert in the industry. We’ve only named three of the biggest mistakes people make entering this industry but there are numerous more ways you can go wrong. Everything from webinars and podcasts to speaking with an investment counselor, make it a point to get well-versed in real estate investing before taking on such a venture.