If a consistent source of passive income is what you’re after, a good rental property can be a sound investment. However, if you’ve never owned or managed a rental property in the past, you may wind up inadvertently hindering yourself. Inexperienced property owners often make a variety of rookie mistakes that have a direct impact on the profitability of their respective rentals. So, in the interest of maximizing the profits generated by your first rental property, take the following pointers to heart.

Look for a Location with Ample Demand

It’s no stretch of the imagination to say that location is vitally important to rental property investments. No matter how much a rental property has to offer, it’s unlikely to turn a healthy profit if it’s found in area with very little housing demand. So, when seeking out potential investment properties, make sure to research the respective locations of any properties that catch your interest. Taking the time to do a little research can save you from making an unwise – and exorbitantly expensive – investment and free up funds for more profitable property ventures.

When carrying out your research, there are a number of factors you’ll need to focus on, with local economy, median income, population, growth projections, property values and rent prices being among the most important. In addition to giving you a good idea of how much you stand to make from a rental property, your findings will provide you with a solid understanding of how much the property’s truly worth, ensuring that you’re able to adjust any offers you’ve made accordingly. Furthermore, regardless of the location, make sure the municipality uses convenient rental registration software.

Understand Maintenance Costs Ahead of Time

It’s important to understand that being able to purchase a rental property doesn’t automatically mean you’ll be able to maintain that property. So, before committing to invest in a property, you’ll need to form a solid understanding of how much monthly maintenance costs are going to run you. With many smaller single-family properties, maintenance costs are fairly manageable, but when it comes to large multi-unit properties, maintenance may eat up a large portion of your monthly rental income.

For example, if you’re looking to invest in a property with dozens – or hundreds – of units, spending thousands a month in maintenance costs is a very likely probability. For one thing, you’ll likely need to hire full-time maintenance personnel, so their salaries should factor into your budgeting. Of course, depending on the condition of the property and location, you may still turn a handsome profit in spite of high maintenance costs. Still, knowing how much you’ll be spending before getting started on any paperwork can help stave off sticker shock down the line.    

Put Genuine Effort into Tenant Screening

Reliable tenants are the backbone of any successful rental property. After all, if people aren’t paying rent, how are you supposed to generate rental income? Furthermore, it can take an extremely long time to evict tenants for non-payment of rent in many areas, so if you make the mistake of taking on an unreliable tenant, you’re liable to be stuck with them for quite a while.

To effectively minimize your chances of taking on unreliable tenants, you’ll need to put genuine effort into your renter screening process. Going with your gut and failing to properly review renter applications will only increase your likelihood of allowing problematic tenants to move in, so if your screening process could stand to be more thorough, now would be the time to get on top of this. When reviewing applications, make sure to look into each applicant’s credit history, income situation and criminal background – after obtaining their permission, of course. Additionally, make sure to get in touch with any references applicants provide, as some people list references under the assumption that property owners won’t follow up. 

It’s hard to deny that a good rental property can be a highly profitable investment, especially if that property happens to be located in an area with ample housing demand. Still, this shouldn’t be taken to mean that every rental property you come across is a guaranteed moneymaker. There are a number of reasons for which rental properties are unable to turn a profit, as well as a number of ways property owners inadvertently sabotage their odds of success. So, if you’re looking to maximize the profitability of your first rental property, make sure to heed the advice outlined above.