You’ve spent a lot of time going over the details, crunching the numbers, researching neighborhoods, and looking for deals. You’ve made countless offers, and went through the mortgage approval process, along with all of those checks and surveys. Now, you finally have it. Your very first investment property!
Congratulations!
Investing in income property offers a number of exciting benefits –something that’s helped to make it one of the most popular investments today. From immediate cash flow to the long-term rewards of equity growth and appreciation –income property can prove to be a rewarding investment. Not to mention, it also offers some pretty good tax breaks, as well as the chance to diversify; a good idea if most of your retirement is tied up in the stock market.
But of course, there’s more to a successful investment than just buying the property. Once you’ve secured it, that’s when the real work begins –keeping that property rented, your tenants happy –and, of course, managing your investment wisely.
Your success as a real estate investor will largely come down to two things: the viability of the investment you’ve purchased –and how well you’re able to manage that asset.
While putting plans into action can be a challenge, it’s important to always take a proactive approach when it comes to your rental property. This approach will help you to ensure that you get the most out of your investment –enabling you to treat it like an income-producing asset that it is, rather than just another side hobby. With the right knowledge, planning, and a careful approach –you can get yourself off to the best start possible, and will be able to start generating cash flow almost right away.
With this in mind, here’s a look at a few things that you’ll want to start doing now that you have that first property.
Create a Repairs List
Unless you purchased a turnkey property, there’s a good chance that you’re going to need to do some repairs and upgrades before you list your property for rent.
Now is a great time to do a walkthrough and create a master list of everything that needs to be repaired, maintained, or upgraded. How far should you go with your upgrades? As a general guideline, you’ll want to get your property in line with other, similar properties in the neighborhood. Make a list of things that need to be done before renting and things that can wait for another time. Tackle the most immediate concerns first, and then get to work securing estimates and establishing timeframes for future repairs.
Know Your Expenses
It’s important to tally up your expenses so that you have a clear idea about what type of returns you can expect from the property.
Expenses include:
- Maintenance and repairs (Estimate 2% of property’s value annually)
- Utilities (if you’re paying for them)
- Vacancies (The national average is 7%)
- Insurance
- Property management fees
- Professional fees: accounting, legal, etc.
- HOA fees (if relevant)
- Taxes
You’ll also want to ensure that you stay ahead of the game by budgeting and planning for unexpected costs that could arise. Is the rental likely to need a new roof soon? What if it needs a new furnace? Stay ahead of the game by anticipating unexpected costs.
Stay in Control
Always ensure that you’re operating from the driver’s seat. Keep focused on your long-term goals and plans. Remember to treat your investment like a business, with plans and clear policies in place. You’ll also want to run the numbers to see what type of returns you’ll be generating with your rental. In addition to cash flow, other calculations include cash-on-cash returns and cap rate.
Note: If a property’s not generating returns that are in-line with your big-picture goals, you may want to consider selling it and putting the proceeds into a different property. Ideally, you should run these key numbers before you purchase a property.
Protect Yourself With an Airtight Lease
Make sure you protect yourself by taking the time to create an airtight lease. A lease will help to keep both parties on the same page, outlining who’s responsible for which tasks –such as lawn care, snow removal, or replacing furnace filters. It should also specify things that are not allowed –such as smoking, or place limitations –on the number of occupants, for instance, or for pets. It should also outline steps that will be taken if there’s a violation of the lease –such as nonpayment of rent.
Get Screening Policies in Place
One key policy that you’ll want to have in place is your tenant screening policy. Having a solid screening policy will help you to ensure that you thoroughly vet each applicant to ensure that the most qualified applicants get approved. A documented policy can also help you to ensure that you screen each tenant equally and fairly.
Get the Right Insurance
If you haven’t done so already, you’ll want to make sure you contact your insurance agency. There are many different policies available, and you’ll want to see what options are available when securing coverage for your rental. Take a look at flood insurance, liability coverage, and even rent guarantee insurance.
Note: If you’re planning to rent out your own home, you’ll want to make sure you notify your insurer of the change. There’s a big difference between homeowner and rental insurance, and failing to notify your insurer that the property’s being used as a rental could result in your policy being made void should you need to make a claim.
Stay Current With Landlord-Tenant Legislation
Also key, is knowing your responsibilities as a landlord. Be sure to check your state’s legislation to see what your rights and duties are. Each state has its own laws that outline how landlords and tenants should interact and conduct business. This includes timelines and requirements for issues like security deposits, eviction, repairs, and more.
Consider a Property Management Company
While many first-time investors start out doing it alone, eventually the work that’s involved with overseeing income properties can start to escalate –especially if you’ve purchased property out of town, or are looking to add more properties to your portfolio. A good property management company can tackle all of the day-to-day tasks as well as the bigger, more time-consuming jobs –like screening tenants, conducting background checks, lease enforcement, and more. Even if you’re planning on managing your property yourself, it’s a good idea to factor in the cost of hiring a property manager into the budget anyway. That way, if you do decide to outsource later on you’ll have options.
Assemble Your Team
If you’re planning to manage your property on your own, you’ll want to ensure that you compile a list of contractors that you can turn to for help when things go wrong. Having a good electrician, plumber, and general contractor on-call that you can reach out to can help to make life easier, and enables you to ensure that you’re able to tackle repairs in a timely manner. Likewise, it’s a good idea to have an accountant along with an attorney that you can reach out to as well.
Have a Plan for Filling Vacancies
Reducing time in between tenants can help you to keep your property cash flowing, so make sure you have a plan for filling vacancies. From advertising vacancies online, to pricing the rental competitively –there’s a lot that you can do to get your property rented, and fast.
See: 5 Marketing Ideas That Will Fill Your Vacation Rentals Quickly.
Plan for Your Next Investment
Finally, it is never too early to start planning for your next investment property. Sure, you may have just signed the papers, but if your goal is to own multiple properties, make sure you don’t just settle for one. Once you get the ball rolling, you’ll want to create a plan for investing in your second property. Will you use the cash flow from the first one to help pay for the second? Will you work to build up equity in the first and then use that to help finance the next one? Take a look at this helpful article on investing in one income property per year.
Whether your goal is to own one rental property or ten –being proactive with investing and management is always the best way to operate. With the above tips, you’ll be able to take an intentional approach with your rentals, allowing you to ensure that you’re on track and moving toward your big-picture goals.
Looking to start adding more properties to your portfolio? Be sure to get a hold of your FREE guide: Real Estate Portfolio Guide: Starting and Growing the Right Way. See how YOU can get the ball rolling!
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