Investing in real estate might not be for the faint of heart. But neither is driving Interstate Highway 70. Both actions require a certain amount of planning as well as some mitigation before and during the process.
The prevailing wisdom in any type of investing says to buy for the long term and don’t become dismayed by short-term changes. Other common pointers advise to purchase real estate only if the net income before taxes for the investment is positive when you factor in vacancy, management and maintenance expenses. Never buy a real estate investment that doesn’t give you an annual net income. This also assumes the property you purchase is in good condition with little or no deferred maintenance.
One of the most overlooked issues in owning investment property is everyday management. That includes not only maintenance but also tenancies, rents charged and the duration of leases.
It’s nearly always more expensive, for example, to replace a high-cost HVAC unit than maintain the existing unit well. The same goes for landscaping and parking lot care.
Maintaining the property well also will help achieve higher overall rents.
The timing of lease terms could be important as well. Let’s say you own a 20-unit apartment building rented to college students. The June through August time frame might be excruciatingly slow for finding replacement tenants for those who vacated in May. Wouldn’t it make more sense to stagger the lease terms and require an extra month or two in rent if the tenant wished to vacate in May?
It pays to stay abreast of market rents for properties similar to those you own. Many savvy property managers aren’t interested in being at the top of the market in rental income. They want to be just under the top of the market to keep those tenants renting for a longer time. Greed on the part of a landlord almost always results in shorter stays for tenants and more angst between landlords and tenants. What goes around ultimately comes around. It’s usually wise to make the tenant’s stay in your investment as pleasant as possible.
Speaking of tenants, be sure to hand out the rules and regulations for residing in your property to each tenant before they move in. Also require the tenant signs or initials that they’ve read the rules and regulations. One bad tenant could cause extreme harm to you financially if allowed to continue to wreak havoc within your property.
Still not sure about a real estate investment? Even with the pitfalls, owning real estate is still safer than driving I-70. Moreover, a real estate investment could prove to be the gift that continues to give year in and year out.