Top 5 Residential Rental Investment Mistakes
1. Paying more for a property than the rent can support. A good rental should produce at least $200 per month over the mortgage payment or PITI. PITI is the term describing your principal, interest, taxes and insurance payment combined. The $200 positive cash flow each month should be saved for repairs or to make mortgage payments if you have a vacancy.
2. Buying in an area that has more rental units than homeowners. Neighborhoods are more stable if they have more homeowners than rental units since there is less volatility and owner occupied homes are usually better maintained. Neighborhoods that are full of rentals are also full of competition for you which can drive down rents so try buying rentals in established neighborhoods.
3. Buying in an area that is not close to your home or work. Tenant issues and repairs do not usually occur at convenient times so it is best to at least to have a convenient location. If you need to make a quick repair, meet a repairman; meet a tenant or prospective tenant many times it can be done during lunch or after work so it makes sense to make it close to home or work. If your rental is not convenient, then you are less likely to maintain the property and keep an eye on the tenants and your investment.
4. Buying a declining property in a declining area. Value appreciation is the key to residential investing, so if your property is not becoming more valuable each year from appreciation then you will only be treading water. Successful investors buy in areas that they can add value to the property to attract the best tenants and benefit from the neighborhood and the property appreciating in value year after year.
5. Buying a property with amenities that a tenant will struggle to maintain. Huge yards, pools and Jacuzzis will attract tenants that may not be able to maintain or afford to maintain these luxury items which can be costly for the landlord to get them back in shape. The best rental is a good clean home with no bells and whistles that is easy for the tenant to maintain.