Property investment is, by far, one of the best investment choices available to you. The great thing about it is that anyone can become a property investor. You don’t need to have huge amounts of experience like seasoned investor Than Merrill does or even that much initial capital to invest. You just need to take care with your money and be willing to put in the right amount of time and energy into the property itself. But there are some pretty common mistakes that first-time property investors tend to make. Luckily, a lot of these mistakes are also fairly easily avoided as well. With that in mind, here are some important things to consider before putting any money down on your first investment property.
The type of lease
It’s important to be sure early on what kind of lease you’re going to rent your property out with. The first thing you need to figure out is if it’s going to be a residential or commercial lease. This will depend heavily on the type of landlord you plan on being as well as how long you want your typical tenancy to last. A residential tenancy is rarely more than a few years where as a commercial tenant could well be there for decades. There is also more variation in different types of commercial real estate leases than residential. The most common are gross leases, wherein the rent is all inclusive, and net leases, where the base rent is lower, but the tenant covers most of the expenses on the property. There are also a lot of variations between single, double and triple net properties, so it’s a good idea to spend some time analyzing net leases to figure out what’s right for you. The kind of lease you choose will depend on what you are able to spend on expenses for the property.
How much time can you commit to it?
Far too many first time landlords make the mistake of assuming that all they have to do is find a tenant and then sit back and watch the rent come rolling in. Now while you shouldn’t be spending every single day going back and forth to the property, you certainly won’t be able to take a completely passive role in its management. Depending on the age and quality of the property, there could well be repairs and essential maintenance that need to be dealt with. The vast majority of the time that’s going to be your responsibility, so you need to be sure that you have the time, and the money, to deal with all of those things without it negatively impacting your life.
What kind of tenant do you want?
Different properties attract different tenants, and you need to be careful that you’re attracting the right kind of people. Don’t fall into the trap of assuming that higher income tenants will be more respectful and reliable than low-income tenants. Now matter what the rental rates are on your property, screen your tenants carefully, get references from previous landlords and meet with them personally to ensure that you’re comfortable with them before signing any paperwork. The right tenants can make your life incredibly easy but the wrong ones can turn it into a waking nightmare.