Renting out properties can be lucrative—but success is far from guaranteed.Many people want to becomelandlords because of the potential income, the security of owning assets, and the increase in value as the years go by.In order for this to be successful, however, the right properties must be selected, starting with your first investment property.
Thisfirst step can feel overwhelming for those just getting into the business.In fact, you might find yourself wishing for a genie in a bottle.First wish: “I wish to find the perfect first investment property.”The team here at Bancroft—your Tucson property manager—has a few tips to help you find the first rental property that’s right for you.While not as easy as a genie granting wishes, we’ve got some tips to help you get started on your own.
Tip #1: Start with Education
Owning and renting out investment properties is a subset of real estate, and those who work in real estate tend to go through various courses to earn certifications and licenses.You don’t need to do soprior to purchasing your first investment property, but it’s best to do some readingup on the basics of real estate and its use as an investment.The idea is to get a firm, foundational understanding of how the market works and what makes a property a good investment property.
Tip #2: Keep it Simple
One of the biggest mistakes people make when starting their investment property portfolio is targeting properties that require a lot of work before they’re ready to rent.It’s understandable why beginners fall into this trap—numerous online guides for acquiring the first rental property will instruct you to target cheap properties in need of significant help.
Why is this problematic?Looking at money alone, you might save when it comes to the purchase price of your little piece of Tucson real estate, but once you factor in the cost of all repairs, renovations, and upgrades to make it competitive on the market, you could find yourself spending much more than if you’d simply purchased a solid (even if outdated) property.As it turns out, these cheaperproperties are also typically notin areas of high demand, which can leave a new investor unable to rent a property. This means not being able to recover the funds for your investment for a longer period of time than anticipated.
Tip #3: Aim for the Middle
On the other end of the spectrum, some people looking to become landlords are tempted to jump right to the top of the market—acquiring properties in the best areas that offer the best amenities.This is often just as much of a mistake as purchasing a property you have to “flip” to get into shape before renting it out.You’ll be less likely to have vacancies, yes, but even if your luxury property charges a high amount for rent, it could be a long time before you see a return on your investment—something you’ll need sooner to continue growing your portfolio.
Tip #4: Remember ThatRental Income isn’t Pure Profit
Owning a rental property comes with a lot of expenses, so when you’re assessing one to acquire, you’ll need to have all those numbers in your head.What are some of those expenses?Here are the key ones you need to consider:
• The initial purchase price
• Real estate brokerage fees
• The cost of property taxes
• The cost of insurance on the property—ask specifically for a rental property policy
• All repairs and upgrades needed to make it safe and competitive in the given market
• Maintenance costs
• Rental property management services, should you choose them
• Monthly loan payments if you take out a loan to purchase the property
• If you work with an investor, their portion of the monthly income
Tip #5: Know How to Rent Out a Property
Make this your mantra: “Finding my first investment property is only the first step.”Once you have that property, it’s time to prep it for rental.While acquiring real estate can be difficult, oftentimes this next part of the process can be even harder. Since it’s continuous, it can become overwhelming if you’re not ready for the task.Many people picture this as simply fixing up the property, placing an ad, and renting to the people who fit best.In truth, there are many more steps, such as:
• Vetting contractors for getting the property into shape
• Setting a rental amount that’s both competitive and profitable for the market
• Creating a marketing plan for the property
• Interviewing potential tenants and showing them the property
• Running background, credit, and reference checks on potential tenants
• Creating a lease that follows local, state, and federal laws while protecting both you and the tenant
• Collecting rent on a monthly basis
• Fielding maintenance requests
• Making periodic improvements to the property to keep it competitive
• Handling procedures when a tenant or you decide not to renew the lease
• Preparing the property for the next tenant and going through most of these steps all over again
If this sounds overwhelming—and it certainly can be—then you may need to seek outside help.
Tip #6: Don’t Be Afraid to Contract With a Property Management Company
You may be hesitant to work with a property manager.After all, they cost money and your goal is to make as much as possible off your first investment property.A qualified property management company, however, can help you make more money on your investment than you could on your own, and their fees are often tax deductible.Some property managers can even assist you in growing your portfolio by helping you select new properties to purchase.By opting for assistance, becoming a landlord can be a more passive form of income for you.
Contact our team at Bancroft & Associates, the premier residential and commercial property manager in Tucson, Arizona.With years of experience, we’re here to help you easily reach all of your property investment goals.
