If you’re interested in purchasing a rental property, it stands to reason that you’re looking to obtain a consistent source of passive income. Although many rental properties certainly fit that description, profits don’t simply generate themselves, and in the absence of sufficient effort on your part, you may find your first rental to be a bust. Fortunately, maximizing a rental property’s odds of profitability is much easier than many first-time investors realize. First-time property owners looking to turn a handsome profit will be well-served by the following pointers.
Research the Best Areas for Investing
The location of your first rental property will play a large role in determining how much income the property is able to generate. Whereas a property in an area with a sizable population and ample demand for housing is liable to prove extremely profitable, a property in an area with a waning population and diminished demand is unlikely to net you the desired ROI. So, if you’ve ever wondered why so many realtors and property investors continually chant the mantra “Location, location, location,” you needn’t wonder any longer.
So, when considering prospective investment properties, don’t limit your scope to your local area – especially if the area in question has low property values and rental prices. Instead, do some research into the most profitable areas for rental property investors. Of course, this may entail being open to investing in other cities, townships, and states. Additionally, if you’re curious about the best cities to invest in real estate in, simply fire up your preferred search engine and/or get in touch with a knowledgeable real estate investment company.
Make Sure the Property is Well-Managed
No matter how desirable an area a property is located in or how many amenities it has to offer, poor property management is likely to result in low renter retention – which is likely to result in diminished profitability. So, if you’ve never owned or managed a rental property, it’s in your best interest to research the ins and outs of property management, especially if you intend to purchase large multi-unit property. Since many apartment complexes and condo developments function as small communities unto themselves, it’s imperative that you brush up on the tenets of a good landlord.
Conversely, if you have neither the time nor inclination to make property management your primary occupation, you’d do well to enlist the services of a professional property manager. Per the title, this individual will be responsible for every aspect of managing your rental property. From promptly addressing tenant concerns to managing maintenance staff to mediating disputes between renters, a dependable property manager wears many hats. While you’ll still have the final say on all big decisions, any property manager you employ should be someone you can trust to make the right choices in your absence.
Properly Vet Every Rental Applicant
Dependable renters are the cornerstone of any successful rental property. In the absence of tenants who regularly pay their rent on time, your first investment property is going to have trouble generating passive income. Unfortunately, there’s no definitive way to distinguish reliable applicants from unreliable applicants. However, by placing each applicant through a rigorous screening process, you can greatly diminish your chances of getting stuck with tenants who are unable to keep up with rent.
So, after obtaining each applicant’s permission, have a look at the credit score, obtain proof of income, and contact any references they provide. No matter how well an applicant presents themselves on the phone or in person, skipping the screening process is practically asking for trouble. If you lack the bandwidth to personally carry out the screening process, consider entrusting this task to your property manager or dependable screening service.
A good rental property can serve as a dependable source of passive income for many years – if not many decades. While well-maintained rentals in popular areas are generally considered safe investments, this doesn’t mean that property owners won’t have to lift a finger to ensure profitability. In fact, in the absence of effort on the part of landlords, even the most attractive rental is liable to have trouble generating the desired ROI. First-time rental property investors looking to bolster profitability would do well to consider the advice outlined above.