No matter how careful of an investor you are, there is always the possibility that you could end up with more costs than income from your investment property.
As a landlord, this is something that can quickly turn into a money pit that endangers the future success of your investment.
To avoid this situation, it is essential to use best practices and to know the ins and outs of how each investment property has its own unique risks that come into play when managing it.
Here are six ways to keep your investment property from becoming a money pit.
1. Use a Written Rental Agreement
More often than not, a verbal rental agreement will have no hold. This leaves plenty of room for issues to arise between you and your tenants.
A written contract is your best policy because it ensures that all dealings are accounted for and provides clear guidance on what responsibilities each party has.
It also helps prevent problems from popping up later down the road, which would be difficult to handle without a contract.
2. Understand City codes and Ordinances
In addition to having a written rental agreement, another way to avoid becoming a money pit is by understanding the types of rules and regulations put in place by cities or municipalities where you purchase an investment property.
These laws might include things like how many people can live in a dwelling, noise ordinances, and what types of pets you are able to have on a property.
Knowing these laws before purchasing the property will help ensure that any problems do not arise later down the road.
3. Ask for Multiple References from Current or Previous Landlords
Whether you are renting out a flat or a condo, it is important to be aware of who your neighbors are.
It may not always be possible to find out detailed information about past landlords and tenants, but asking for multiple references from current or previous landlords can help prevent situations where you may have bad neighbors move into your building.
It is generally uncertain how honest people will be when their references are, so using a personal network to ask around might help you avoid future issues.
When checking references, asking things like what their responsibilities were during their tenancy, how prompt they were with rent payments, and whether problems ever arose can help paint a picture of your potential tenant.
4. Conduct Thorough Screening Procedures
It is essential to understand that credit reports are only one tool used to screen applicants at an investment property.
A somewhat recent trend has been using social media as part of the application process because people often forget that it leaves more personal information open than they think.
Using social media profiles as part of rental application procedures is becoming increasingly common across all types of properties, including those on the market for sale.
Another screening practice landlords use is drug testing, which is essential to avoid potential problems later down the road. People who have a history of drug use or dealing will be less desirable tenants.
5. Develop a Maintenance Plan for Your Investment Property
As with any investment, you must develop a plan for routine maintenance to prevent issues from popping up later down the road.
Things like regular inspections and checkups will help catch any potential problems before they become annoyances for you and your tenants.
This is especially true when renting out because items such as air conditioning units, appliances, sinks, and toilets can quickly become problems due to wear and tear or misuse by tenants living there.
6. Ensure that You Have the Proper Insurance Coverage in Place
One way to avoid becoming a money pit is by making sure that you purchase the proper insurance coverage for your investment property.
This means having building insurance, contents insurance, and renter’s insurance in place so if anything were to happen, not only are your assets protected, but your tenants are as well.
A renter’s policy will pay for any lost or damaged belongings at the property while covering them for legal expenses related to accidents inside the structure itself.
To avoid becoming a money pit, you must have the proper insurance coverage in place and regular maintenance procedures.
Be sure to develop a maintenance plan for your property so any potential problems can be caught before they become severe and expensive issues down the road.
These six ways will help keep your investment property maintained and give good returns on your investments.