Please welcome Dominica Applegate who will talk about the challenges of real estate investing. Dominica is a contributing writer at Inzopa.com. Inzopa is a private network of home buyers, owners, mortgage lenders and real estate agents. Let me know if you would like to guest post on RFI.
With the surge in foreclosures over the past five years, there has been a significant increase in real estate investing. Investors have taken advantage of the down market in order to snatch up rental properties for ultra-low prices. Real estate investing is a great way to earn residual income, but before you run off to the bank to get approved for a loan, be sure you are ready for the challenges that come along with real estate investing.
Getting foreclosures ready to rent
Not all foreclosures are in optimal shape. In fact, some are really run down and have significant damage. If you want to invest in real estate, you must be ready to put some money and time into getting your rental tenant ready. You might have to hire a painter, a carpenter, plumber, landscaper, or electrician to get the house suitable for someone to live in it. Of course, it will be much cheaper if you can do some of that labor yourself. If you are prepared financially to invest in getting the foreclosure ready, then you are ready to begin your investment career.
Getting suitable tenants
If you ask real estate investors what their greatest headache is, they will probably tell you that tenants give them more headaches than you can imagine. Finding tenants that pay on time is not always an easy task, but there are ways to increase the chance that your tenants will be on time and respect the property. If you can afford to hire a property manager, this is your best bet. You might have to pay them around 10% of the monthly rental rate, but that 10% covers a lot and will save you many headaches. They can advertise the rental, meet prospective tenants to show the home, have them fill out the rental application, perform the credit and background checks, and make the final decision on who gets the house. Additionally, the property manager handles collecting the rent, sending out late notices, and filing eviction if necessary. You just sit back and collect a check each month. If you cannot afford to pay a property manager, be prepared to handle all of those tasks yourself.
Tenants destroying property
Even if you have the best of the best property manager, sometimes a tenant that seems respectable will not treat your rental home with respect. Plenty of real estate investors walk into a home that has been trashed after a tenant has left. They may leave a pile of garbage, the carpets may have stains all over them, the walls could have holes, there can be water damage, cockroach infestation, and more. Are you prepared to handle such after a tenant leaves? This is one reason to always require a full month’s security deposit and a pet deposit as well. Dogs and cats can tear a house up in no time if the owners are not responsible pet owners.
Tenants not paying
Are you prepared for when your tenant tells you that his wife left him and he can’t pay rent anymore? Even if you file eviction, he can stay in that property for weeks until the court hearing. You could potentially lose one to two months’ rent money if this happens. Be sure that you are prepared financially to cover the mortgage in the case that your tenant skips town or camps out in your house until the eviction process is complete.
There are certainly perks to owing real estate. Cash flow and a tenant purchasing your home are two wonderful benefits of investing in real estate, but be sure that you are ready for the challenges of investing as well. Over time you will get used to these challenges, and things will not be such a struggle as you pay off mortgages and learn what to do in each situation. Real estate investing is certainly a great way to increase your yearly income and set yourself up for a bright financial future.