Last Updated on Apr 7, 2022 by James W
Becoming a landlord can be a great way to generate passive income. In fact, depending on the types of properties you invest in, how many properties you own and the locations of your various properties, you may be able to turn a profitable side gig into a full-time career. However, if you’re a relative newcomer to rental property ownership, you’d do well not to presume success right out of the gate. Fledgling landlords looking to make their initial forays into property ownership as profitable as possible can benefit from the following measures.
Do Your Research
Considering how much money is at stake in the average property investment, making a purchase without doing the proper research can be disastrous for your long-term finances. So, before proceeding to put down an offer, take some time to research the location of the property. Among other things, make a point of looking up the area’s local rental rates, crime rates, average income and projected growth. Depending on what you find, you may come to deem a property an unwise investment and move on to other options.
Inspect the Property
Purchasing a rental property sight unseen is among the most ruinous financial decisions a person can make. With this in mind, abstain from purchasing properties that you haven’t personally inspected. If a seller refuses to let you inspect the property, take this as a red flag and walk away. Additionally, take care to do the same if a seller is extremely hesitant about allowing you to conduct an inspection.
For maximum security, have any property in which you have an interest in investing thoroughly inspected by a seasoned home inspector. This person will be able to identify an extensive assortment of structural, plumbing and electrical issues – some of which the seller may not even be aware of. While this is likely to cost you a little bit of money, it will also put you in a better position to bargain with the seller. After all, the inspector’s report reveals a number of hitherto-unknown problems, you’ll be justified in requesting a reduction in the asking price.
Invest in Larger Properties
If you’re interested in turning rental property ownership into your full-time career, you may want to consider pursuing larger multi-family rental investment opportunities. Fledgling investors looking to go big should seek out apartment buildings and complexes, as well as condo developments. The larger the property, the more units it’s likely to house. The more units it houses, the more tenants you can take on – and the more tenants you take on, the more income you stand to generate. Additionally, since homeowners insurance doesn’t apply to rental properties, make sure to seek out a dependable landlord insurance policy.
Don’t Skip the Screening Process
Tenants are the most important part of any rental property. Without tenants paying rent on a regular basis, very few landlords would be able to afford upkeep, maintenance and property taxes. As such, it’s imperative that every tenant you take on be able to comfortably afford rent. While there’s no guaranteed method of identifying potentially problematic tenants from the outset, thoroughly screening every rental application you receive can dramatically reduce your chances of wind up with renters who can’t pay.
Among other things, the screening process should entail a detailed credit check. Although most Americans have some level of outstanding, applicants who are saddled with massive amounts of debt generally aren’t the safest bets. You should also confirm that every applicant has a regular source of income – be it a job, Social Security, pension or disability payments. Ideally, every successful applicant should make thrice the cost of rent on a monthly basis, but if they have good credit and/or a financially stable cosigner, it may be okay to bend this rule. Furthermore, make sure to contact any references an applicant provides – especially former landlords.
It’s easy to see why becoming a landlord strikes so many property investors as a lucrative venture. Depending on how much thought you put into your investments and how meticulous you are about maintaining them, there’s a good chance that you’ll be able to generate a fair amount of passive income. However, as any seasoned investor will tell you, expecting overnight success with your first rental property is practically setting yourself up for disappointment. In the interest of ensuring a healthy ROI from your properties, heed the pointers discussed above.