Owning an investment property isn’t for everyone—but if you’re looking to start, here’s some advice.
Investment property management is simple: buy a property, then rent and manage it yourself to create a positive cash flow out of your investment. By doing everything on your own you can cut costs and maximize profits.
But is it really that easy? (Spoiler alert: it’s not.)
If it was that easy, everyone would be doing it! The reality is that investment property management isn’t for everyone. It can be stressful, time-consuming, and risky—but in some cases, it might be a worthwhile endeavor.
Here’s our advice and a few suggestions for anyone looking to get into investment property management. We’ve been in this industry for years, so we like to think we know a thing or two about this stuff. And unfortunately, we’ve seen a lot of people buy investment properties when they could’ve put their money to better use elsewhere.
You need plenty of savings
If you’re thinking about buying an investment property you obviously need to have money saved up for a down payment—but there are a lot of other things people don’t consider. After the down payment, you’ll need to have money available for repairs, upgrades, and renovations. You’ll want some cushion in case your property doesn’t rent quickly or ends up going vacant in the future. To put it bluntly, if you have any concerns about not having enough money saved, you probably don’t have enough.
Until you get to that point, there are likely better ways to use your money—like investing in the stock market or a Real Estate Investment Trust (REIT). An REIT is a company that owns and operates a portfolio of income-producing real estate. Investing in an REIT lets you invest in real estate with far less capital and, in theory, far less risk.
You need to be in a strong market
Real estate market values are constantly changing—there are some areas of the country that are on the up and up, while others are in decline. If you’re buying a house to live in, this is something to take into account but it’s not going to be the deciding factor.
If you’re buying a property as an investment, on the other hand, it is the deciding factor. If the property market value in your area is on the decline, you need to stay far away. You’d be better off relocating to a different area or just investing your money elsewhere. Alternatively, you could buy a property in a different location and have an absentee landlord or property management company look after it for you. Either way, you need to go where the market is strong—and that means either a lot of research or some know-how on your part.
Maintenance is time-consuming and frustrating
Maintenance issues are bound to come up with any property, and if you’re managing an investment property of your own, it’s all on you. On the one hand, you’ll need to be handy enough to fix small issues and savvy enough to find contractors or service companies for anything outside of your realm.
But on the other hand, you have to be ready for the time investment and the inconvenience. If you have a full-time job, will you be able to drop everything and run to your property to fix a water leak? Are you willing to spend time researching how to fix an oven? If someone isn’t paying their rent, will you be able to handle it?
In many cases, dealing with these issues just isn’t worth your time. That is why many people opt to hire a property management company to look after their investment instead of trying to do it all themselves.
The financials can get real complicated, real quick
Creating a passive income stream from your investment property is no small feat. Many newcomers think creating a positive cash flow is as simple as cashing a few rent checks each month. This could not be further from the truth.
In order to successfully manage your investment property, you need to be capable of managing your books, negotiating a good mortgage, and maximizing the value of your investment. If your property is vacant for even a short amount of time, you might actually lose money on your investment. And when tax season comes around, you’ll need to have all your ducks in a row.
If you’re not up for this or you’re not “a numbers person,” you might be in trouble.
If you can handle it, it could be a great opportunity
Although owning and managing a property is tricky, it can be a great way to invest your money. Unlike many other investments, you’re able to directly influence and control your returns—and there is immense value in that. If you invest in the right property, in the right area, at the right time, and manage it correctly…you could see some truly massive returns. But it takes a certain type of person to be able to handle all of the stress and complications that can arise.
All of these pitfalls are why property management companies (like us) exist. If you’re interested in owning an investment property but the idea of managing it scares you—or if we just scared you with this post, in which case, it was for your own good—a property management company can help.
In many cases, hiring a property management company can pay for itself and then some. The job of a property management company is ultimately to make sure your investment brings a solid return—and they do this by cutting costs, maximizing the value of your property, and managing your finances.
If you’re interested in buying an investment property or having someone help manage your current investment, get in touch with the Mergo team. We’d be happy to look into your situation to see how we can help.