A short while ago Karen Blumenthal of The Wall Street Journal wrote an article that is well worth summarizing.
Here are a few highlights from her piece titled: Six Mistakes Housing Investors Make
‘Traditional investments are delivering low returns, and home prices are at bargain levels. Is it time to consider buying some rental housing?”
“Before you start scouring for deals, keep in mind that owning rental properties is time-consuming, expensive and fraught with challenges, and many investors lose money. You will want to avoid falling into one of these traps:”
Mistake 1: Confusing a cheap deal for a good deal
• A bargain price does not necessarily make the property a good rental.
• No the market and the neighborhood so you understand the rental value and vacancy factor.
Mistake 2: Overlooking key costs
• When you purchase your rental be sure you factor in the closing costs of 3% to 6% and the cost of fixing up and maintaining.
• Then, if you intend to turn the property around you must factor in your anticipated profit to arrive at a buying price.
Mistake 3: Forgetting that time is money
• David Hicks, co-president of HomeVestors of America, a franchiser whose motto is “We Buy Ugly Houses” reminds us that time is our biggest enemy.
• “You lose money when your property is empty, whether you are painting it or between tenants. You also lose if you buy in the fall and can’t replace the roof until spring. You may be better off accepting a lower rent then waiting for a higher-paying tenant,”according to Karen Blumenthal.
Mistake 4: Assuming you will sit back and watch the rent roll in.
• By nature, a landlord is also a rent collector.
• Tenants lose their jobs and stop paying their rent.
• Evections take time, usually several weeks.
• Some tenants will even steal appliances or remove copper tubing in their way out to sell.
Mistake 5: Underestimating repair costs
• Rentals will require lots of repairs from mold and wood rot to that cracked bathtub or new carpet and painting…and don’t forget the landscape maintenance. It is estimated that carpet alone must be replaced every five years.
Mistake 6: Assuming that owning a rental is the same as a home
• You might be willing to put up with flaws in a home that a renter wouldn’t tolerate.
• Many states and communities have strict laws for landlords.
• A property manager can handle most headaches, but expect to pay from one month’s rent or 10% for management fees.
Here’s the link to the full article: