Typically the first step in determining whether to consider a real estate investment is to evaluate the numbers. What is the cost of the property? What level of rental demand exists? Does the income cover the expenses plus an additional amount to warrant the risk? But the second step is equally important and certainly just as critical to long term success. And that next step is to take time and reflect on your own skills and personality. You have assessed the building now assess yourself.
- Are you able to manage conflict?
- Can you manage your own anger and communicate well?
- Can you handle interruptions to your schedule?
- Do you feel comfortable with financial risk?
- Can you manage frustration and stress when others damage your property?
- Are you able to make simple building repairs?
- Do you have basic accounting skills?
- Are you able to market and sell the benefits of renting your space?
These questions and others should be answered long before you start searching for property. Just because the rental business might have good financial returns does not mean you have the skills or personality for this type of investment.
Even if you hire a manager to take on some of the day to day tasks of the rental operation you will still need the temperament to handle some level of chaos and unpredictability. There is also a basic level of understanding of building maintenance that will be required. Once again while you can hire people for many of the tasks you are still responsible for the decisions. As a landlord, you must wear many hats in order to maximize earnings. Hiring a management company will impact profits and still require supervision and decision making on your part. A rental investment is like starting a small business and it is beneficial to understand your business and yourself.
The product that you are selling in this business is the rental space but it is also yourself. People want and need to feel safe and cared for in their home. So it is critical for landlords to be proactive, spotting problems before they occur. Identifying routine maintenance for the building but also for the tenant relationship. Checking in with tenants, asking them about their experience in the space, making sure they don’t have concerns. All of these steps help you elongate the tenants stay, reduce vacancy and improve the bottom line of your investment.
So the building might be beautiful, cheap and in the middle of a college town but are you personally ready for this type of intrusion in your life?