Buying a rental property in Broward County can be a very lucrative investment strategy. Making the right investment can enable you to earn passive income and accumulate assets.
Sadly, some landlords either fail to buy in the right location or just simply buy the wrong property. This is especially true for beginner landlords, who lack experience and industry knowledge.
In this blog, we’re going to look at 6 avoidable mistakes that you should look out for when budgeting your rental property. Let’s get started!
Mistake #1: Buying in the wrong location.
When it comes to real estate, location is everything. It can make the difference between success and failure.
Generally, the location you choose should meet two criteria:
- It should be appealing to prospective tenants.
- It should be in an area that you have quick and easy access to.
Finding the right location begins with due diligence. A good investment location is somewhere with plenty of employment opportunities, public transit, and good amenities. These are just some of the things that drive housing demand.
Once you get the location right, the next thing you want to do is begin the property search. Ideally, stay away from fixer-uppers unless you have enough experience to consider yourself a renovation expert.
Mistake #2: Underestimating the cost of repairs.
When buying a property, don’t underestimate repair costs. Be wary of purchasing properties that require lots of repairs before they can be rent ready. While you want to avoid fixer-uppers at all costs, there at times that you may come across an irresistible “great deal”.
Sometimes, “great deals” can turn out to be just that. However, in other cases, they can turn out to be the exact opposite. What you initially thought would be a simple fix can end up costing you a fortune to fix.
Ultimately, the project may end up costing you more time and money than initially budgeted for. The following are some tips to help you deal with rental repairs.
- Budget for surprise costs. Ideally, add an extra 15% to your estimated costs of repairs. For example, what you initially thought was some few cracks on the floor may end being a serious foundation problem.
- Before committing to any repair project, always do your due diligence on the cost of supplies. This should help you stay within your budget.
- Only use professional repairmen. This should help you avoid overpaying for simple repairs and getting shoddy jobs done.
- Invest in a thorough inspection. A professional inspector will provide you a report showing you what exactly is wrong with the property.
Planning ahead of time and avoid problematic properties will go a long way in saving you lots of stress, time, and money in the long run.
Mistake #3: Failing to calculate your potential cash flow.
A smart buy on a rental property can deliver a great return on investment. However, many landlords aren’t careful when it comes to calculating a property’s potential cash flow. The following are good ways of avoiding a property that may affect your bottom line for the worse.
One, avoid overpaying for your property. To do so, check comparable properties. Many landlords that are just starting out make the mistake of buying with their hearts and not their heads. They forget it’s a business deal and not their dream home.
Two, do your calculations. After paying for any maintenance required, insurance, taxes, and mortgage, you should have money left over. If not, it may be worthwhile to look elsewhere.
Next, charge the right rent. The right rent attracts the right renter. That said, setting the right rent requires a great deal of skills and experience. It may be in your best interest to hire a professional property management company.
Lastly, look for areas with high rental demand and low vacancy rates. Buying in an area that’s surrounded by other properties will only lower your home’s value.
Mistake #4: Failing to do your research.
Federal, state, and local laws govern the rental business. Without understanding them, you could find yourself on the wrong side of the law. The following are some tips to help in this regard:
- Ensure your property meets the basic requirements set by Florida Lead Poisoning Prevention Program. This is especially true if you are buying an old property.
- Install carbon monoxide alarms. This is as per Florida Statute 553.885.
- The property you buy must also meet the basic requirements of Florida Implied Warranty of habitability law.
- Make sure you understand the process behind applying for and receiving a rental license in Broward County.
Mistake #5: Underestimating the costs of renovations.
Similar to underestimating the costs of repairs, overpaying on renovations is a common problem for new landlords.
There is no denying the fact that improving a property’s desirability is of utmost importance. What you want to avoid, however, is overpaying for them. As a savvy landlord, you want more bang for your buck and not vice versa.
Mistake #6: Failing to hire a professional to manage your property.
A mistake commonly made by new landlords with their first rental property is believing that collecting rent at the end of each month is their primary responsibility. This mentality often ends up being costly to their bottom line.
Managing tenants requires skills, experience, and resources. Without these, it’s best to hire an experienced property management company.
Investing in real estate can be lucrative. However, just like any other investment, due diligence is key to being successful. When it comes to buying rental property in Broward County, Florida these are the 6 mistakes you want to avoid at all costs.