We’ve been around the proverbial block a few times. Our management team has decades of experience in the real estate and mortgage markets and a proven track record in private real estate lending. So it wouldn’t be an exaggeration to say that we consider ourselves to be experts in the field.
Whenever we can, we want to pass on our hard-earned knowledge to our current and potential clients—thus, this blog post.
In recent months, we have noticed increased interest in our rental loan products—both our short-term 5, 7, and 10 year ARMs and 30 year fixed instruments. Borrowers see the potential for rental cash flow to hedge against inflation while also capturing long term capital appreciation.
But investing in rental properties is not without its pitfalls. Below are some of the most common mistakes we see.
Miscalculating Demand In Your Area
For your rental investment to pay off, you need tenants. So you’ll want to know a bit about the supply of housing in the area in relation to the estimated demand. Obviously, you want your estimated vacancy rate to be as low as possible but it should also be based in reality. To find data for your region, consider consulting the US Census Bureau where they list vacancy rates by region. You’ll be glad you did!
Overestimating Rents
Many investors subscribe to the 1% rule which suggests that monthly rent should be roughly 1% of the property’s purchase price. That would mean a $200K home should rent for $2000 per month. While this might be a helpful rule of thumb, it’s rarely that simple. We suggest diving deeper into listing aggregators like apartments.com or rent.com and comparing similar properties to find the going rental rate.
Underestimating Expenses
No matter how much research you do, it is hard to expect the unexpected. So it pays to secure rental property insurance commonly referred to as a landlord policy. We also recommend setting aside funds for regular, expected maintenance as well as unforeseen emergency repairs. And, of course, you should have a fair idea of utilities costs and energy usage before you pull the trigger.
There is a lot of upside to a rental property investment but it pays to do your homework. If you want to talk through your investment project, reach out to us at info@gonavcap.com or 888.444.3160. We are always happy to help!