Some Common Mistakes That Landlords Make With Investment Properties

Competitive interest rates have encouraged many potential investors to jump into purchasing investment properties to secure their retirement or just increase their cash flow.

But not every one who buys a property and rents it out earns a profit or has a positive experience. Understanding where other rental property investors have gone wrong can help you avoid their mistakes, the most common ones being:

Buying your Property in the Wrong Location. Buying in an area where rental demand is low, or there is little employment opportunities may give you trouble finding and retaining tenants. Also remember that property values in less desirable areas will also be harder hit when there is a market correction. So do your research on the area properly and focus on an area that is in demand and is likely to grow over time.

Shortage of Working Capital. If you are a landlord, you cannot afford to be short on cash. Serious repairs can come up at anytime, you can have prolonged vacancies, and renovations may be needed or desirable. It is extremely important that you have access to a low interest line of credit to deal with these eventualities.

Assuming Income will Cover Expenses. This is a major cause of concern with many investors. You have to do the math properly on each property before you buy. Do extensive research on the going rental rates in your area. Make sure you establish the mortgage rate with the Bank and try and get accurate estimates on the utilities and property taxes. Whenever you don’t have accurate information, make conservative estimates: sometimes it is better to over-estimate than under-estimate as this leaves more margin for error.

Not Screening Tenants Properly. You can never predict the behavior of your potential tenant. An unruly tenant can ruin your home, bounce rent cheques and even refuse to move out. Make sure you screen your tenants thoroughly – sometimes losing a month’s rent is far cheaper than accepting a tenant you may be uncomfortable with.

Not Doing Enough Preventative Maintenance. If you ignore basic maintenance such as keeping the drains unclogged, your unit will gradually deteriorate and the repair costs will be far more prohibitive than if you had spent money on basic maintenance. Also making cost-effective improvements will allow you to get a higher rent and improve your rate of return.

If done properly, the experience of being a landlord can be very rewarding. The horror stories you hear from landlords are usually because they made one of the mistakes just outlined.