Investing in real estate is a huge commitment and understanding what you are getting yourself into is essential to your success. Putting your real estate investment on autopilot is many people's vision of what it means to own a rental property, but the reality is that once you invest you become your own property manager. Properly managing your property can be a time consuming endeavor - with property maintenance, budget planning, tenant screening, rent collection, and financing all becoming your responsibility. Below we quickly point out three key mistakes we have seen, and what our advice would be.
Budget planning is one of the most important parts of owning an investment property. Setting up a bank account for your property will be essential, and below we go into money management techniques.
a. Rent Collection and Mortgage Payment Account: This will be a very simple account with the rent payments coming in every month and the mortgage payments coming out.
b. Savings/Maintenance Account: Say in this situation your property has a rent of $2,000/month and mortgage of $1,200/month, once the mortgage is paid in your other account, transfer 50% or $400 of the profit into your savings and maintenance account every month. This account is most important and the benefit in this will pay off tremendously in the long run. The other 50% of the rental profit is yours to keep, happy spending!
2. Choosing your Tenant Correctly
In addition to money management, tenant screening and choosing the right occupant for the property is going to be one of the most important factors of success in your property. You want to choose a tenant with good credit history, is using no more than 30% of their income on rent and has a good criminal and employment background. You don't want to acquire a tenant that could possibly have a hard time paying rent and be left with a mortgage payment coming out of pocket.
3. Not being a part of the community
Our final tip is to be involved with the community you're investing in! Introducing yourself to the neighbors and building those relationships will go a long way when there comes a time that you'll need someone to call on to help out with something regarding your investment.