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If you’ve decided to become a real-estate investor and have recently bought your first investment property that you plan to rent out, you may be feeling overwhelmed about your next steps. It’s important, after all, to find the best tenants possible for your property and to ensure the management process goes smoothly.
However, if you do your research and follow some simple-but-effective tips, you’ll have an investment property that is low on stress but high on profits. Read on for some steps you can take today.
Treat Your Investments Like a Business
To make profits out of your purchases you must treat the process of finding the right property, buying it, renting it out and otherwise managing it seriously.
For starters, it’s best to rent your property to people you’re not close to rather than friends or family members. Many investors end up in all sorts of difficult situations because they opt for casual situations where people they know live in their rentals. Unfortunately, often, tenants don’t pay on time, damage the property or cause other issues. When this happens with family or friends, it is not only awkward, but can make it much harder to make a profit.
You should also always screen potential renters before you allow them access to a property. You wouldn’t hire employees without checking their references, and you should behave the same with lessees: You need to find out what their credit history is like and if they’ve ever had any run-ins with the law. Furthermore, once you have tenants in a property, don’t fall for sob stories if they get behind on their payments. You must chase up overdue rent payments straight away and take further action when required.
Another way to treat your properties as a business is to set up separate accounts where funds can be deposited and where costs for upkeep and other charges are deducted. This keeps all investment-related transactions separate from your personal ones.
In addition, hang onto receipts for every item or service you have to purchase for the maintenance or upgrade of the home over time because these can be used for deductions come tax time. Protect yourself against risks such as floods, fires, landslides and the like by getting insurance or a real estate home warranty to cover appliances and other systems in your homes.
Choose a Rental Agency Carefully
Next, think about outsourcing the management of your property to a real estate office that specializes rental management. While you can choose to handle the rentals and other admin duties yourself, doing so takes up a huge amount of time and energy and, if you aren’t experienced in the area, may lead you to make costly mistakes.
Choose a rental agency and agent carefully. There are usually many options in any given suburb or town, so you need to compare these to understand who will best fit your needs. Talk to different firms and learn about their experience working in the area and with the type of property you own.
Ask for details about what types of reports you’ll receive from them over time and what their charges are. Keep in mind that you need to examine what the standard weekly, fortnightly or monthly percentage fee is that they’ll take from your rent and how much they charge every time they have to find a new tenant and draw up a lease. There could be additional fees such as cancellation costs to end a contract or fees for managing repairs and maintenance duties. Always make sure you’re comparing apples with apples.
Consult an Accountant and Lawyer
Before you purchase any investment property, you should discuss things with your accountant and lawyer. Your accountant is there to advise you on what you can and can’t claim on tax for your property (like maintenance, repairs, loan fees, rental agency costs, insurances and more), and they will give you tips on the best way to structure the ownership of your property (e.g. it might be wise to buy the home in a company or trust name).
You should also have your lawyer read through the purchase contract carefully before you buy the property. Get them to explain your rights and responsibilities as a landlord, and have them check the rental agency agreement to ensure it’s all in good order. To protect yourself, you need to have detailed contracts in place with the firm who will be managing the property as well as a lease agreement with tenants to cover you if things go bad.