Avoiding the “Money Pit” when Buying Rental Properties
In the 1986 hit movie, The Money Pit, Tom Hanks and Shelley Long buy a country estate outside the city at a bargain price. It soon becomes apparent why...as the doors fall off their hinges, staircases come tumbling down and a bathtub falls through the floor. While the film is full of humor, I know many investors who can relate all-too-well with the comedic couple, but it’s no laughing matter.
Save yourself the horrors of a money pit by following these 3 Simple Rules before investing in rental properties
Put Your Business Goggles On
After all, these homes aren’t for you so don’t judge them based on your personal preferences. Any property you buy has to make sense from a business perspective. Look for sensible, reasonably priced homes that would be appealing to your “dream” tenant.
Know Your Numbers
An error in analysis, whether it’s paying too much for a home or not budgeting for the ongoing costs of the property has caused many investors to see their asset become a liability. Know what you can afford and educate yourself on the costs associated with this type of investment. Just covering your loan isn’t going to cut it. It is not uncommon for a property to be vacant for several days before it is leased. Meanwhile the investor has to pay the mortgage, the taxes, the insurance, the cost of advertising and homeowner or condo association dues.
Always Over Budget
There is more to consider than your loan, property taxes and insurance. Make sure to budget for routine maintenance and other unforeseen expenses. After you’ve done your research, plan to add a little more money and time you think it will take. If you can still make money after these considerations, you probably have a great investment at hand.
Before I close, I’d like to share the GOLDEN RULE of real estate investing – education. Educate yourself before you put your family's financial security on the line. Read books, sign up for information centered newsletters and look for local resources, where you’ll find speakers who cover everything from buying foreclosures to screening tenants.
Educating for REAL Greatness,
Red Team Real Estate and Property Management
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