From an outside perspective, investing in real estate often sounds like a dream come true. Purchasing an extra property to rent out and cover some of your own bills may seem like a no-brainer if you have the capital. Of course, some real estate investors, especially first-timers, find that it’s hard to stay on top of recurring expenses and end up spending more than their property is taking in each month. But there are plenty of ways to prevent this. Here’s a quick guide for first-time real estate investors to ensure you cut a continuous profit.
Set Clear Objectives
Even successful investors can lose their income momentum as a result of not clearly defining their goals. Lack of clear objectives can result in money mismanagement and even bankruptcy. Though a Chapter 7 bankruptcy typically only takes around six months to complete, it can hinder your ability to buy property for years. To look at the big picture, take all things into consideration in terms of income, market, tax advantages, lifestyle, and more:
“Do you want income, appreciation, tax advantages or even a lifestyle benefit where you occasionally use the property yourself? Find the market that supports what you want,” writes Keith Weinhold on Forbes.
Hire the Right Property Manager
A mismanaged property can be disastrous with those new to real estate investing. Knowing this, it’s absolutely worthwhile to take considerable time exploring all of your options for high-quality and professional property management. This is a large part of what makes the property compelling for tenants, both residential and commercial. A professional property manager maintains the property to prevent losing money on the resale value. For example, about 97% of real estate agents recommended landscaping as a top five home improvement recommendation, responding that a homeowner can expect a 215% return on investment. Without hiring a property manager who truly cares, your investment will likely fall into disrepair.
Consider All Operating Expenses
In order to set a fair rental price, you have to take a number of factors into consideration to determine your total operating expenses. Experts recommend using the acronym, ‘VITVUM,’ which stands for, “vacancy,” “insurance” (remember, 93% of American homeowners have at least basic homeowners insurance), “maintenance,” “taxes,” “utilities,” and “management.” Then and only then can you set a fair rental price to offset these costs and make a monthly profit. If you’re seeking a passive monthly income stream, consider your rent amount minus the mortgage and the VITVUM amount should be positive.
Take Advantage of Free Resources
Finally, don’t neglect the never-ending opportunity you have to use free resources like the Internet when determining the best investment strategies and purchasing decisions. The average time to sell a property in many markets right now is six to 12 months, and while it’s perfectly fine to start browsing potential rental properties, it’s best to consult a professional before taking any concrete steps to make your real estate investment dream become a reality.
These tips are just the tip of the iceberg when it comes to the vastly expanding realm of real estate investment. Always follow your gut instinct and start off with a small property that’s physically and financially manageable.