The world of real estate is an exciting one, and it has a lot to offer industry veterans and newcomers alike. If you’re just now investing in a rental property, you have the opportunity to grow your wealth significantly. But before you dive in head-first, you should know a few basic things about your future as a landlord and how you can get more out of your income property—while risking less.
Advertise online, vet tenants carefully, and land the right renter
Your income property makes income through rent, but it will only do that if you have a reliable tenant who pays the rent on time and in full. And you’ll only make a profit if your income (rent) is higher than your costs, which include taxes, maintenance, and more. A bad tenant can damage your property, leading to higher repair and maintenance costs that will eat up your profits before you even see them.
Be careful and land the right tenant, so that you don’t have to worry about these dangers! Use landlord software to advertise your property online, where the vast majority of renters begin the search for their next apartment or house. Set up a great listing with a rental application, and use landlord software tools to perform credit and background checks before you agree to rent to anyone.
Protect yourself with inspections, lawyers, and insurance
Real estate properties offer a lot of opportunities to make serious money, but they also offer plenty of risk. Fortunately, you can mitigate much of that risk with some common sense and a few real estate industry tools and strategies.
Protecting yourself starts with carefully researching your investment opportunity. Make sure that you fully understand the property that you’re buying: do market research, get the property inspected, and develop a business plan that shows your potential return on investment (ROI).
Work with an attorney to set up your business as a legal entity, so that you are sheltered from some of the financial consequences if your plan fails. And get landlord insurance, which is key to protecting your real estate business in the event that your property is damaged.
Be smart and take things slow
Real estate can offer huge profits, but don’t expect to become rich overnight from your income property. Take things slow, and grow your business steadily. Keeping your expectations realistic and your business plan sensible will help you avoid taking unnecessary risks.
Set rents carefully and understand that your profits might not be eye-popping all of the time. Pay for quality maintenance regularly, because you’ll only end up paying more if you neglect repairs now. Buy new properties only when you have the means to do so. If you rush into this, you could end up losing money and your fledgling real estate empire, but a slow and steady approach can mean consistent growth.
Manage risk with a diverse investment strategy
If you own a real estate property then, by definition, you have a lot of cash tied up in a single investment. That’s not necessarily a bad thing—as we’ve said already, an income property can be a very powerful way to build wealth. But it does mean that you need to remember to balance the risk with your overall financial strategy.
If you don’t have enough cash in other places, including an emergency fund and highly liquid investments, then you could find yourself needing to get cash out of your income property faster than it can generate it. And that may mean that you are forced to sell your property at a less-than-ideal price or take out debt that you’d rather avoid.
Be smart: balance your real estate investment strategy with a diverse financial plan that helps you maintain financial security while making the most of your income property. For help, consider speaking to a financial advisor.