Get involves in property investment field is like you started a business. There are so many risks and pitfalls are waiting for you.
Invest in property is awesome as it can increase our wealth and if we succeed in this field, we need not to worry about our retirement fund. But, in order to succeed in property investment field, every landlord must have learn to avoid these common pitfalls that could threaten a landlord’s profitability.
➊ Taking Too Long To Get Units Rent-Ready
Taking too long to go from acquisition to bringing in income can be disastrous. You don’t want to go broke before you’ve even landed your first tenant. It is mind-blowing to see some new landlords take months and months to renovate a new acquisition and get a tenant in. Others seem to manage it in just days.
You should make repairs right and do a quality job. No question about it. But every day is money. Even without loan payments, you are accruing property taxes and insurance, and your ROI is declining while you are missing out on tenants. If you’re in a Midwest market that has rough winters, this is especially critical when those months are coming up.
This is very important, don’t take too long on renovation and get a tenant in as soon as possible. Otherwise, you just losing your own money and it can destroy your dream of becoming a successful property investor.
➋ Allowing Extended Vacancy
The same risks as above also apply to extended vacancy periods while you own the property. This can happen any time you turn tenants (which is why savvy landlords treasure long term tenants). This loss of income and extra risk of exposure to damage, vandalism, and squatters during vacant periods may seem palatable if you have just one unit. Wait till you have 10 (or 100) sitting empty. Experienced landlords leverage the best technology and systems to hone in and make sure rental units are rent-ready again in just a few days. They also make sure they have a constant pipeline of renters — and often a waiting list — so there are as close to zero down days as possible.
It is advisable to not to make your property stay vacant up to 1 month. Sometimes, you can seek help from your ex-tenants to introduce the others potential tenants to you. Alternatively, you can ask your existing tenant to introduce others potetial tenants to you before they move out. It can save you a lot of time.
➌ Failing to Verify What You Can Rent for in Advance
Never, never, ever just take someone’s word for what a rental may rent for. Never. Not the seller and not the listing agent. Always do your own due diligence. Don’t look at asking rents. For vacant units, pull comps in the neighborhood, talk to people, run ads, and test the market.
For example, if there is a similar house to yours with an asking rent of RM 1500 and it has been on the market for 4 months, then chances are that is not what the market is willing to pay. Price accordingly. The market will always let you know whether you are priced too high or too low.
This is important to analyzing each neighborhood’s overall average rents from a highest to lowest average rents over the past 6 months. So you can set the reasonable rents and you’re good to go for tenant hunting.
➍ Over-Rehabbing the Property
Over-improvements will bankrupt you and will put you in a negative equity position.Please avoid it. Make your units nice, but don’t overdo it and rehab the property to attract a RM 1,500 a month tenant when no one in the neighborhood is paying more than RM 800 per month.
Last but not least, don’t over renovate your rental property as you don’t know whether the tenants willing to pay for such high rents. You can do the simple renovation such as electricity, plumbing system, wall painting, door and window locks and etc. Do read our another article: 6 renovation tips when buying an old property to learn what type of renovation work that you should do and what shouldn’t do.