Investing in real estate is a goal for most beginning investors. You’re told to buy a home for cheap, find a tenant, and collect a check every month. But if you ask anyone who has invested in real estate before, 100% of them will tell you that is not the case. There will be possible insurance issues, repair issues, tax issues, tenant issues, and more. Though there are hundreds of tips that can be listed to help lower the chances of future problems, I’ve listed 5 that are very important to know.
1. Find and Network with Other Successful Investors
Learning from others who’ve made mistakes is a great way for you to either avoid them, or be able to deal with them properly if they do happen. By networking with other investors, you can get inside information as well as hear numerous tales of their real estate adventures. Need information regarding a neighborhood? Need the names of a good contractor or a plumber? What about tips on how to buy a foreclosed home in an auction? Having a great network will help you with obtaining this information. Many of you think that these “busy investors do not have time to hold my hand“, but you will be surprised at how many investors love to share information with others. A smart investor knows that even though you may be a novice today, in 5 years you may have multiple homes and complexes that you own. Find local real estate groups or events. You could even call the number on the signs stating “We Buy Homes” and ask questions. Buying a home can be a big deal, so you don’t want to go at it alone with such a big purchase. Make sure you have a great team of real estate investors and specialists that you can consult with when needed.
2. Start Slow
If you’re starting out with your first real estate investment, you may have plans to expand and own multiple homes in the future. There’s nothing wrong with expanding, but you must make sure to take your time. Let’s say that you buy a home and have a nice tenant renting your location. You’ve had the home for a year and actually made a profit. You decide to go ahead and purchase a new investment home. The second home is purchased, but there are renovations that need to be complete. You scrape up the extra money to have the home fixed, but after 3 months, you can’t find a qualified tenant to rent to. Now your tenant at the first home has lost their job, and has missed a payment. There was also water backup damage at the first home that you now have to pay for because the insurance company denied the claim. So now you’re facing an unemployed, late paying tenant, repair cost for water damage, a full mortgage payment for the 2nd home, and a mortgage for your personal home. But if you took your time and waited to buy that second home, you would have been able to handle the issues at the first home with less stress. When you have a home that you’re renting to others, you have to plan for those times when the rent does not come on time, as well as all of the other issues that could come up. You can always grow in the years to come, but in the beginning, just start slow to make sure you have a handle on your early real estate investments.
3. Maintain Your Properties
All homes have items that need to be repaired/replaced, or will need to be repaired/replaced. Your goal as an investor is to spend as least as possible, but by being too cheap, you could end up having to spend much more in the future. If you have a tenant in your home, this makes the repairs needed more important and urgent. By maintaining your properties properly, you can address small issues before they become major. Do routine inspections of your properties. This is not only to make sure that your tenants are taking care of your home, but to also check out the dwelling and appliances to see if there are any potential issues that need to be addressed. Sometimes you may have to spend $150 on water heater maintenance to avoid having to pay $2000 for a new one in the near future. By keeping things maintained, you will reduce the amount of major issues and you can see what big ticket items you may have to address in the future. This way you can start preparing for these expenses months & years before you may have to actually go through with them. Bigger Pockets has a good article that gives tips on maintaining your properties
4. Don’t Negotiate with Late Paying Tenants
If you invest in real estate long enough, you’re going to have to deal with late paying tenants. You may hear numerous excuses or you may not even be able to get in touch with them. The best advice is to not negotiate with tenants who are late paying. Nine times out of ten, they will be late again, and they will expect you to work with them as you did before. Make sure in your lease agreement that you point out your late fees and terms for starting the eviction procedure if payment is not received. If it gets to that point where they have reached their deadline, start the eviction procedure that you stated in your terms. You may have to spend extra money, but in the end, it will always save you more. You don’t want to hang on to bad tenants, and even if they are good tenants with a rare occurrence, they now know you mean business. No major apartment complex will negotiate with their residents and neither should you. It never works in the landlord’s favor in the end.
5. Find Good Tenants
Finding good tenants may be one of the most important rules to successful real estate investing. Many times, owners are facing having to pay multiple mortgages, so they rush in a tenant so they can start collecting rent. Take your time and screen tenants properly. Check their employment history, personal references, previous landlords, and their income. Even though it may take you longer to find a qualified renter, you can save yourself months of headaches and money from just renting to the first person who shows interest in your home. Once you go through the process a few times, you will start to be able to choose your tenants more wisely. If you do find qualified tenants, see if you can lock them in to a 2-3 year lease. Remember that you are making your profit off of the tenants, so make sure you select those that will be able to pay you. Or else, you’ll be paying money out of your own pocket for them to have a place to stay. Here are a few tips for finding and screening good tenants.