1. It's a Business!
The most common mistake new investors make is not realizing they have started their own business and their new business takes time. A professional real estate agent can advise you about net operating income, cash flow, appreciation, tax benefits, management requirements, financing, and much more. It is also advisable to consult with a CPA, tax planner, and/or attorney before beginning your business.
2. Rely on Your Own Numbers
Don't believe what the seller is telling you. Double-check everything before signing on the dotted line. Know the term of current leases, collected rents, taxes, expenses, deposits, etc. The seller will try to put his/her "best foot forward." Remember "buyer beware!" Rely on your calculations to decide whether the property is a good investment.
3. Join Local Associations
Many areas have good landlord associations or investment clubs that you can join. It's a great way to stay up on local ordinances and learn from other investors.
4. It's a Business!
Being a landlord can be difficult. While owning an investment property can bring great potential, it also brings difficulties. Evicting tenants, deciding who to rent to, making improvements, etc. are business decisions you will deal with daily. Remember, it's a business.
5. Logic, Not Emotion
It is imperative that your investment decisions be based on logical conclusions, not emotions. Save the emotions for your primary residence or for the next football game!
6. Inspect, Inspect, Inspect
Hire a professional inspector. The current tenants can be a great source of information. Remember, all maintenance and improvements are your sole responsibility once you own the property. Know thoroughly what you will be responsible for.
7. It's a Business!
You are in business to make a profit. Unless you are looking for a tax write-off, be careful not to buy a property that will be in a negative cash flow position.
8. Due Diligence
Get copies of all current leases. Confirm with the local municipality that there are no zoning violations. Make sure you understand the local municipality's licensing or other restrictions for investment properties in their jurisdiction. Make sure you are able to insure the property (which may require a commercial insurance agent).
9. What is Included?
There are many different types of personal property (appliances and fixtures, for example) involved in an investment sale. Make sure you know who owns what.
10. Insurance is Mandatory
You should consult with an insurance agent who specializes in commercial properties. Liability issues should be discussed seriously with both your insurance agent and your attorney.
11. It’s a Business!
All businesses rely on customers. Remember that your tenants are your customers. Make your customer happy and you will have continued rents with little turnover.
12. Be Selective, but Fair
Run credit checks on each tenant. Double-check their references from previous landlords, employers, and friends. Look for judgments and convictions. Meet with them at their current residence to see how they live. However, remember there are fair housing laws!
13. Rent at Fair Market Rents
Too low of rents costs you cash flow, but too high of rents will cost you cash flow due to vacancies. Rents are like anything else, they go up and down. Keep on top of rents in your local area.
14. It's a Business!
Remember you are running a business. The bottom line is what matters. Keep an eye on interest rates and refinance if rates are significantly lower than you are currently paying. Watch your expenses. Run your investment property like you do your primary residence, with a household budget. Keep an eye on fair market rents. Compete with amenities and charge more if the market will bear it, such as internet service or cable TV. Family-oriented investments could use a swing-set for the kids.
Email or Call me at 801.554.9988 if you have questions about any of this or you would like additional information about investing in real estate.