First Time Investor
Congratulations. You’ve bought, inherited, or been gifted your first investment property. Maybe you need to move, but aren’t ready to sell your house and have considered leasing it out. There are a lot of reasons somebody might become a first-time investor, but with that responsibility comes a lot of questions. Thankfully, we have answers for you.
There are a lot of great resources available for first time investors, but we will give you a starting point. I’ve been in real estate for over ten years, I’ve managed tons of houses along with tenants. On top of this, I’m a real estate investor and understand the specific needs of being a landlord.
With this experience, I want to point out some risks and opportunities that may not seem obvious. I hope you find this helpful.
When it comes to building wealth, owning real estate offers great potential. Imagine buying a property at $120,000. There’s a mortgage due, but if you rent the property out, you’re not the one actually making that mortgage payment.
Somebody else (your tenant) is doing it for you. You collect the rent and pay the mortgage with that money. And if things are done the right way, you’ll even have a little bit left over which allows you to have extra cash flow. Sounds good, right?
Now, at the end of the mortgage period, which usually runs 20 or 30 years, your property is paid off and becomes an asset that you own free and clear. Even better if you’ve gotten some appreciation along the way.
Another great thing about owning an investment property is the tax advantages you can use. Expenses related to the home along with depreciation can benefit you in the end. Be sure to speak with a CPA to learn more about these tax tips.
I want to point out is that this venture isn’t always risk-free. This is one area that is often overlooked by newer investors. It can be overwhelming when you think about the risks, but it’s important to be realistic.
You may be concerned about:
- Non-paying tenants
- Home damage
- Difficult tenants
- Liability issues
There’s good reason to be, especially living in a lawsuit happy culture.
So, yes, there are risks, but don’t panic. There are ways to minimize your risks and make this first time investor experience work to your benefit. I can’t promise they’ll all be eliminated, but reducing your risks makes a big difference at the end of the day.
For example, in terms of your liability, you can purchase liability insurance. Always purchase liability insurance when you own a rental—don’t skimp here.
As for non-payment issues, screen your tenants and be prepared that from time to time, you may have to pursue an eviction. But if you’re prepared and screen tenants before they move in, you’re going to minimize that risk.
The same holds true for damages. If you care for the home appropriately, you can do it in a manner that minimizes your big outlays. Let’s talk about being prepared. It’s critical as a first-time investor. Start working on a rainy-day fund, because something WILL happen. You wont know what will happen, but trust me when I say that something will happen and you’ll need some capital to get you through.
Being prepared as a first time investor:
Whether it’s a non-paying tenant or a large repair, things like come up. If you don’t have a rainy-day fund, it creates a ton of stress and tension. What I would recommend to the greatest degree possible is to start with some money in savings which can cover potential issues.
As you make cashflow on your rental, don’t take that money out until you’ve saved. Personally, I have six months of rent in a rainy-day fund for each of my rentals. It’s sometimes easier said than done, but you should be able to get there by stripping out your cashflow and putting it aside. Once you have that in place, then you can start using that cashflow for other things.
You are also responsible for familiarity with landlord and tenant laws. You don’t have to be an expert, but you need to be smart here.
If you go to court, whether on an eviction or any other matter, they wont excuse ignorance to the law. If you’re going to be a first time investor and landlord, you need to have familiarity with landlord and tenant laws.
I would recommend engaging an attorney in some manner. Consider hiring them on a small retainer, just make sure that you have access to legal advice. Trust me, there’s a lot of value in having an expert that you can rely on, especially in this area.
With so much available information, where do you start? One place worth checking out is the BiggerPockets Forum. This marketplace and gathering for investors can be found at BiggerPockets.com. They have a lot of resources, along with active investors, new investors and more. There is a free and a paid version. They offer books and resources written by investors for investors. They know what they’re speaking of.
Property Management for first time investors:
You should talk to a property manager. Consider utilizing a professional. There’s a lot of value that can be gained, as well as alleviating stress on your end. Either way, whether you choose to use a property manager or not, the most important thing you can do is treat your venture as a business.
It’s fine to be compassionate and work with tenants, but understand where to draw the line between personal and business investments. I’m not saying to be cold-hearted, but once in business, it’s important to have this mindset.
Make it clear up front, make your tenants aware that you’re entering into a legal agreement. You have legal responsibilities, but they do too. This is critically important. If you think you’ll have difficulty with this aspect of being a landlord, it’s a perfect reason to use a property manager. It helps put a layer of separation between yourself and the tenant, so you can stay business minded. See more about our services here.
Working with tenants as a first time investor:
For example, if your tenant hasn’t paid in months it may be because you haven’t addressed the issue properly. That’s not an accusation. When we have a tenant that’s not paying, we pursue certain legal avenues as property managers. We’re used to dealing with these circumstances that can be a sticky situation. As a first-time investor, it can be uncomfortable if you’re not used to handling these details. That’s not to say we evict everyone, but we hold them to a standard.
If you found this helpful, check out the rest of our helpful articles and videos. Resolute Property Management has created a series of Do-It-Yourself landlord videos that are meant for anyone doing it themselves. There’s no pitch. There’s no obligation.
We want to offer a helpful resource for first time investors, to be equipped to do a better job. We provide tips and ideas on how you can manage on your own.
How Resolute Property Management Can Help
To discuss Ocala real estate supply in 2021, you can schedule a 15-minute call today. Our Ocala property management company loves to help investors, so we carefully and provide valuable insights. Let’s talk!