You hear it here and there, “You should invest in real estate!” or “Start saving for your first investment property!” On the other hand, many fail to mention what happens after you close on your first investment property and things go pear-shaped! As a matter of fact, that’s what you must worry about the most. When buying a real estate investment, you are going to calculate how much the property costs and how much rental income it will yield. However, many often forget the importance of cash flow, specifically maintaining a positive cash flow, after buying income property.
What happens after buying an investment property?
We’ve researched and gathered things almost every real estate investor will have to go through after buying his/her first investment property. The list below is not set in stone; many real estate investors might not have to deal with such issues after buying income property:
Property taxes will get a little steeper
Having higher property taxes is the deal that you will have to strike with the devil when real estate investing. When buying income property, beginner real estate investors might not know that many states offer exemptions for your primary residence. So, when the investment property tax bill comes, things can literally go BANANAS!
Make sure to incorporate property tax rates into your decision-making process as it can turn any income property into a negative cash flow income property and that’s something no one really wants.
Read this blog post to know the highest and lowest property tax rates states: US Housing Market 2018: Highest and Lowest Property Tax Rates by State.
Damage caused by renters is almost unavoidable
If you’ve known landlords or been a tenant yourself, then you know the effect any tenant can have on an investment property. Stains on the wall, holes in the wall, clogged drains, and broken appliances. These are some of the few damages that real estate investors and landlords will have to deal with. So, make sure you thoroughly think of the cost that tenant damage can rip out of your wallet. A useful tool that many real estate investors are using after buying income property is the art of security deposit! While it may make the process a bit inconvenient for the tenant, it makes your job as a landlord and property investor just a little bit easier. After all, whenever you rent, you will be so careful as to not leave a scratch on the wall to make sure not to lose your security deposit.
Good tenants expect to be rewarded
By having good tenants that pay on time and are taking care of your property, you should reward those tenants in order to retain them for a longer period of time. A reward to your tenants doesn’t necessarily mean anything financial. As a matter of fact, real estate investors can improve the property by installing new appliances or remodel a bathroom or a kitchen then pass the cost to the tenant. This works by simply asking the tenant if a dishwasher or a bathroom update is needed and in return, you ask for a small increase with the rent!
Unexpected repairs just because
Real estate investors are always afraid of the unexpected. In fact, most successful real estate investors go for complete analysis of the property before buying to avoid losing capital and to increase the return on investment. Keep in mind that real estate investors must run a thorough market analysis in order to ensure they are getting their money’s worth! On the other hand, many unexpected costs come along with buying an investment property; you never know when the water heater is going to break down on you or when the roof will need maintenance! It’s important to save for a rainy day with real estate.
Being a landlord is a tough one
Indeed, it is! Being a landlord means you must make tough decisions and you will not be everyone’s favorite landlord! When you buy real estate, you are signing up to be someone’s landlord! You will have to set rules and enforce them! You will have to, sooner or later, deal with evictions. After all, your goal is the rental income and you will have to have a steady return on investment to keep the status quo.
Property Management is going to eat some of your rental income
For many real estate investors, professional property management is an inseparable part of real estate investing. Additionally, professional property management turns any income property into a passive real estate investment. It’s a price to pay for the relief of dealing with tenants and guests. In recent years, real estate investors started considering out-of-state real estate investing and investing in turn-key properties to maximize their return on investment. However, if you’re a penny pincher, and you should be, you should cut costs from all corners to maximize your cash flow through cutting down expenses.
Wondering if you should go for professional property management? Read this blog post: When Should Landlords Opt for Professional Property Management?
One property is not enough to build a steady cash flow
It all begins with your first real estate investment! A real estate investment portfolio can have so many rental properties and fix-and-flips to stay fresh and lucrative. In many cases of real estate investing, the property investor buys a property and rents it out thinking that it’s enough to generate a substantial rental income.
That’s not really the case of what happens every time when buying income property. Once you buy your first income property, mortgage payments and bills start coming your way! So, if you’re not efficient at managing your property, you will find the second investment property an impossible thought, simply because you’re not ready for it. In order to build a sustainable business model, you will need to be buying income property every few months or year to make sure you’re growing your real estate investment portfolio to encompass more and more investment strategies. A useful tip for beginner real estate investors when buying income property is to build a real estate investment network to help you make the most out of every real estate investment.
Read this to go deeper into building a network: How to Build and Maintain a Real Estate Investment Network.
It’s crucial for real estate investors to have an idea of what happens after buying income property. After all, buying income property is not all fine and dandy; you will get the good and the bad side of real estate. Always remember to keep moving forward past the troubles and issues that come your way!
If you have any more insights on the topic, please share them with us in the comments section below.