Pitfalls To Avoid When Investing In Rental Property

There are potential disadvantages to owning rental property; however, you can help to minimize possible pitfalls by following certain guidelines to protect your investment.

First, always make sure that your expectations regarding investing in rental property are reasonable and realistic. You should always approach the investment of rental property with the goal of achieving a positive cash flow; however, do not expect that you will be able to buy a new vacation home within a year.

In addition, it is important to make sure that you take the time to do your research and ensure that you understand the rules and regulations regarding the ownership and operation of rental property. As the owner of rental property, you must abide by certain federal and state laws which provide specific information regarding your liabilities and responsibilities.

Along those same lines, it is important to be certain that any lease or rental agreements you handle are absolutely legal. If you handle a lease or rental agreement which is not legal, you may experience a number of problems if your tenant happens to violate terms of the lease. To be safe, it is best to have an attorney draft your lease and rental agreements.

Before purchasing any rental property, be sure to have the property inspected or else you may discover you are facing a set of expenses you did not anticipate. Having the property inspected by a professional before you sign on the dotted line will involve an expense; however, compared to the expenses you could face by purchasing a property without an inspection, it is certainly well worth it.

When you begin the process of renting out your property, take the time to run credit checks and call references. These are both steps which many novice landlords often overlook in their rush to fill their rental properties and begin turning a profit; however, it can be detrimental. Remember that having an empty unit is always better than rushing and having an irresponsible tenant who may destroy your property, get behind on their rent and ultimately prove difficult to evict.

Joining the Landlords’ Association in your local area can also prove to be helpful by putting you in connection with experienced investors and landlords. You can also gain access to reliable contractors, inspectors and other professionals who can make the process of operating rental property much easier.

It is also imperative that you make sure you have adequate property insurance as well as liability insurance. Property insurance will help to protect your investment while liability insurance will protect you in the event anything should happen to someone while on your property.

Finally, make sure you take the time to establish an emergency fund in order to cover expenses which may crop up unexpectedly. Remember that you are operating a business and as such you must be prepared for those times when expenses arise. The exact amount that you wish to contribute to your emergency fund is ultimately up to you; however, it should be sufficient to cover typical expenses that may arise. The general rule of thumb is to put aside 10 – 30% of the value of your property. To make the process of establishing an emergency fund easier, consider setting aside a certain amount of your rental receipts each month into a special account.

Buying Vacation Rental Property

While many investors who purchase rental property focus on residences intended for year around living, there is no denying the fact that vacation rental properties can provide an excellent income. Renting out vacation rental properties however, can be much different than renting out a regular residence. There are numerous items that prospective vacation renters are looking for; so it is worth it to take the time to ensure that your property measures up. 

First, always make sure that the property you consider is in a good location. Most people who consider renting property for their vacation have certain ideas regarding the geographic location that they want. The setting for the property should be relaxing and picturesque. The property should also be quite safe so that renters will know they can enjoy their vacation in peace and security. 

Seriously consider a property that is family friendly. There is an extremely large market for family friendly properties which you can tap into. For a property to be family friendly, the furnishings should be able to easily accommodate children. This means that property should be sturdy and should not include a lot of easily breakable items. Ideally, the property should be in a location that will cater to families. Look for properties near pools with lifeguards as well as playgrounds. 

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Affordable rental prices can also be a great way to ensure that your vacation rental property is booked. A vacation rental property with a reasonable price is always attractive to vacationers because it offers amenities which no hotel is able to compete; including privacy, good views, a full kitchen and more space in which to relax.

In addition, take the time to make sure that the property really does feel like home. Kitchens should be well equipped, furnishings should be comfortable and recreational equipment should be provided.

Keep in mind that it is becoming more and more popular for vacationers to combine their vacation with some other event such as a wedding or family reunion. If you want to cater to these groups, it is important to make sure that your property can easily host groups. One key feature for these types of rental properties is offering a reception room that can easily serve for different functions. 

You might also wish to consider making the vacation property friendly for pets. Many owners are reluctant to do this because of the potential for property destruction. Keep in mind; however, that there is definitely a niche market for vacation rental properties that are pet friendly. Most hotels do not provide this option, so it gives your property an advantage. If this is appealing to you, make sure the property is safely fenced. Consider installing wood floors instead of carpeting. 

To make sure that your vacation property has a wide appeal, set up Internet access. Even while on vacation, most people want to make sure they have Internet access. You can do this using a DSL connection, WIFI or wireless connection.

Insurance For Rental Property Owners

Owning rental investment property can be a satisfying and lucrative operation. However, there are also several areas which need to be carefully heeded in order to make sure that you are not sued and do not become liable for any issues which may arise in connection with your property. Learning how to protect yourself is the first step in ensuring that your investment does not actually become a liability. 

First, you must always make sure that you have adequate casualty and property insurance as well as liability insurance. These three items are not the same and it should always be remembered that property insurance will not typically protect you in the event someone becomes injured on your property. 

Property and casualty insurance will cover you in the event your property suffers from losses resulting from storm, fire or some other catastrophic loss. Liability insurance is intended to protect you if you should be found to be responsible for someone else’s losses. You may also wish to consider carrying flood insurance if your property is in a community that participates in the National Flood Insurance Program. Umbrella insurance, which will provide you with additional liability insurance beyond a general liability insurance policy, is another worthy option you may consider. 

You may ask yourself under what circumstances you may need liability insurance. There are many instances in which liability insurance could be helpful. For example, liability insurance could protect you in the event a tenant or an employee becomes injured on your property. Liability insurance can also protect you in the event you are sued for discrimination by tenants. 

In the event you hire someone to work on your property, it is a good idea to ensure that all repairmen as well as contractors are able to provide their own certificates of insurance indicating they carry both workers’ compensation as well as liability coverage. 

You should also make sure you review your insurance coverage with your insurance agent on a regular basis. Many people make the good intention of taking out adequate insurance coverage; however, they fail to review their policies and when disaster does strike sometime later they are surprised to discover that they did not have sufficient coverage after all. 

It is also a good idea to make sure that you have formed good working relationships with critical professionals such as an attorney and a good tax accountant. There are many areas of renting property which are regulated by law. If you are not aware of your obligations under these housing laws, you could find yourself facing legal troubles. Therefore, it is certainly a good idea to consult an attorney to make sure you may not be breaking any fair housing laws. It can be entirely too easy to find yourself in trouble because you unknowingly violated one of these laws. Additionally, make sure you meet with a professional tax accountant at least once per year to discuss your tax obligations regarding your property and revenue. 

It is also a good idea to check with your local government to determine whether you are required to have a business license in order to operate a rental property in the local area. While this was rather uncommon at one time, today more and more municipalities are enacting regulations which require a business license for each rental property.

Also, keep in mind that your property insurance policy will not cover the belongings of your renter in the event of damage. It is usually a good idea to make sure you let your tenants know this by putting it in writing. Many landlords not only encourage their tenants to obtain renter’s insurance but also require it. 

Finally, take proactive steps to reduce your liability by making sure that your property is safe. Liability insurance is certainly beneficial but the best way to ensure that you steer clear of trouble is to keep your property well maintained.

Advantages Of Owning Rental Property

The fact that you can be your own boss when you invest in rental property is a benefit which should not be underestimated. Whether you are considering quitting your current job to become a full-time rental property investor or you are looking to supplement your current income, you can benefit from the fact that there is a tremendous amount of independence to enjoy by owning and operating rental property.

More and more people are becoming interested in investing in rental property due to the large number of advantages offered by owning rental property. One of the largest of those advantages is the fact that when you invest in rental property, you are able to take ownership of an asset that is tangible. Compared to other types of investments, this is a tremendous advantage. It can be difficult for many people to get excited about stocks and bonds; however, gazing at a piece of rental property that you personally selected and are maintaining can provide you with the same pride in ownership that you received when you bought your first home. Rental property is also an income-producing asset which can be a much appreciated inheritance for future generations.

Income is another tremendous advantage of investing in rental property. While you will need to deduct the mortgage payment if you finance the property and any relevant expenses, a rental property is often able to produce ongoing income for you.

The value of appreciation should not be overlooked either. Generally, such properties improve in value over time. While appreciation can never be guaranteed, if you take the time to choose a property in an area that is stable then there is a very good chance that the property will continue to increase in value as time goes by.

Rental property owners are also able to take advantage of leverage. This is because you have the ability to purchase a rental property with funds that are borrowed. As a result, you are able to begin taking advantage of the benefits offered by owning rental property while only investing a percentage of the total value of the property. In addition, since the property itself will secure the debt you do not have to worry about using other assets to secure it.

Tax advantages are another important benefit of owning rental property. If you obtain a mortgage on your property, you will frequently be able to deduct your mortgage interest payments. There are also a number of other tax deductions which can potentially be taken when you own rental property including the cost of repairs and improvements.

What To Look For When Buying A Rental Property

Location is always important when it comes to real estate and that is no different when shopping for a rental property than when purchasing a home in which you will live. Properties which are close to amenities such as shopping, schools, worship centers and are generally considered to be in a good neighborhood and will typically make better rentals than homes that are located on busy streets or which are not near such amenities.

Outdated homes are a prime example of properties which do not make the best rentals. One of the main reasons that outdated homes do not often make good rental properties is the fact that they are simply more prone to have things go wrong with them. You will have two choices when dealing with an outdated rental property, you can either spend the money to update it and risk your profit or you can not update. The latter is also quite risky as most renters, if they have a choice, will rent a property that is updated. Renters typically expect the properties they are renting to be safe, secure and have working systems and appliances. Some of the main problems you may run into with outdated problems include plumbing issues, roof leaks, cracks and settling, electrical problems and the ability to obtain parts for appliances. 

Homes with pools also do not frequently make ideal rental properties. At first, you may see a home with a pool as an advantage which would be appealing to prospective tenants; however, this is not always the case. Many prospective tenants, especially if they have young children, do not want to live in a home with a pool because of the risk factor. You should also take into consideration the issue of liability as well as the cost of maintaining the pool. 

In addition, homes that are considered to be high maintenance may not make the best rental properties. Consider how much time you are willing to spend each week working on your own home, if you are a homeowner. You might find the tasks of weeding, mowing the lawn and watering the flowers at least fulfilling if not rewarding. The thing about tenants; however, is that they are often not willing to perform these tasks for a home they do not own. If you have a property that requires all of these tasks consider hiring someone to handle the yard work and then including the price in the rent. You will be able to guarantee that the work is done and your property does not look unkempt without having to actually worry about it yourself. 

It is always important to make sure you take location in mind when choosing a rental property because most prospective tenants will be looking for properties that are in good locations. If there is competition on the market, a tenant will often choose a rental that is in better location even if it means paying a bit more in rent.