Real estate investment is a relatively safe form of investment–if you do everything right. After all, nothing is ever guaranteed, and the market has a mind of its own. Here are some basic ways to protect yourself when investing in rental properties.
How to Protect Yourself When Investing in Rental Properties: Insure Your Properties
Not only is it the legally essential option, but it’s simply the smart thing to do. As expensive as home insurance is, it will prevent emergencies from crippling you financially. Properties are some of the most expensive assets the average citizen can own.
Common accidents–like fires, flooding, storm damage, and more–can cause huge amounts of damage, ranging up to hundreds of thousands of dollars. Insurance is how you prevent bearing the brunt of such costs. Consider the different insurance companies carefully. Different plans with different amounts of coverage will vary in cost and effectiveness. A more expansive coverage is more expensive, but safer.
Draft a Lease Agreement
No matter where you rent, you can expect to sign a contract with the landlord. A solid lease agreement isn’t just a good idea–it’s a necessity. The important thing is to make sure that you don’t skip any essential components that most would expect to have in a lease agreement.
You’re going to have to specify exactly what your responsibilities are, and exactly what the tenant’s responsibilities are. The lease agreement can outline what happens when you need to evict a tenant. It will hold both parties accountable for their ends of the deal. If a tenant has questions it is the first document they can check. Look at other local lease agreements to get an idea of what the standard is.
How to Protect Yourself When Investing in Rental Properties: Buy Carefully
Making the actual decision to buy (or sell) is the most important step. Most properties tend to appreciate in value–but you need to be careful about when and where you buy. An area with a growing population tends to be a good spot for renting out a house, especially if it’s big with families or students. Urban areas are the best bet. Suburbs and rural areas can be more hit or miss. Make sure you are confident in your ability to consistently have tenants for an indefinite amount of time.
Positive cash flow is how you are going to make money. Having tenants is absolutely essential. If you can, get tenants who will stay for long periods of time. High rates of turnover mean more chances to leave the space unfilled.
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Build-to-rent investing is a strategy in which an investor or a group of investors constructs or develops a rental property and then rents it out to tenants Click here to learn more
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