That\u2019s just the tip of the iceberg\u2014before taking the plunge on that fixer-upper in a hot rental neighborhood, get a better idea of what you\u2019re signing up for with this point-by-point roundup we put together with the help of seasoned real estate investors.<\/p>\n While owning rental properties may provide you with passive income, that doesn\u2019t mean it won\u2019t require a lot of work. Managing that property\u2014fixing it up, keeping it in top shape, dealing with tenants, etc.\u2014will almost certainly take more time and engagement than you expect.<\/p>\n \u201cPeople think they won\u2019t have to be actively involved,\u201d says Charles Tassell<\/a>, COO of the National Real Estate Investors Association<\/a>. \u201cBut you have to watch your properties. If you don\u2019t, they\u2019ll be destroyed, they\u2019ll go away, you\u2019ll lose them. Real estate is something you have to be very mindful of.\u201d<\/p>\n \u201cBut hang on,\u201d you say. \u201cI\u2019m planning on using a property management company to manage my property. They\u2019ll take care of everything.\u201d<\/p>\n A good property manager will make it easier<\/i> to manage your rental property. However, not all property management companies are created equal. It\u2019s vital to do your due diligence on local property managers<\/a> before you hire one, as a bad property manager could cost you a lot more in both time and money than simply managing the property yourself would.<\/p>\n Some of the most common problems associated with poor property management companies include:<\/p>\n To ensure that you don\u2019t end up with a bad property management company<\/a>, you should:<\/p>\n Maybe the town you live in is glutted with rental properties, or the market is weak. So you\u2019re looking to invest in a hotter market\u2014one that has the holy trinity for rentals: that would be affordability, population growth, and job growth<\/a>, according to Real Wealth Network<\/a>, a real estate investment club that helps its members build wealth with income properties and an Inc. 5000 Company.<\/p>\n You\u2019re also looking for markets where you can find relatively low-cost properties (around the $100,000 range) with high cash flow potential (i.e. lots of potential renters).<\/p>\n It\u2019s easy to look up stats on a city like average rent, cost of living, population size, etc. Sites like Apartment List<\/a> and City-Data<\/a> are good places to start.<\/p>\n However, you need to go a lot further if you want to make a good investment, rather than end up saddled with a money pit.<\/p>\n \u201cIt\u2019s not saying, \u2018I\u2019m going to buy in Colorado,\u2019\u201d Tassel says. \u201cIt\u2019s not even, \u2018I\u2019m going to buy in Denver.\u2019 It\u2019s buying in this submarket, in this neighborhood. Going just a couple of blocks away can change things dramatically, so understanding your market on that micro level is important.\u201d<\/p>\n You\u2019ll want to know the average rent in the neighborhood you\u2019re considering, as well as whether it\u2019s in a good school district, whether the community has amenities like a park or pool, and more.<\/p>\n Doing this right requires making an in-person trip to scout out the neighborhood in person so you can get a feel for the area, see how busy the streets are and how noisy the vicinity is, for example.<\/p>\n An in-person trip will also let you fact-check vaguer qualities like walkability. A property might technically be within walking distance to restaurants or a school, but are there sidewalks, and if so, are they in good repair? Are the intersections calm enough to allow for safe walking?<\/p>\n The more details like this you can get, the better.<\/p>\n In addition, seeking out public records<\/a> like tax assessments via your county\u2019s tax office is also a smart idea. Many counties offer online portals that allow you to search property tax records.<\/p>\n If you\u2019re considering investing in rental real estate, it\u2019s important to assemble a team you can count on. That includes:<\/p>\n Real estate attorneys are invaluable<\/a>, especially to investors who are new to the game. When you\u2019re considering properties, attorneys can help you evaluate deeds and records, and will be able to spot potential legal issues that you might never have noticed: irregularities in tax history, for example, or a problem with a deed that could lead to issues with either closing the property or eventually selling it.<\/p>\n What\u2019s more, an attorney can help ensure that you\u2019re working from the most up-to-date regulations, says Tassell, because subtle changes in the law can have major implications for your investment.<\/p>\n Unless you\u2019re planning on spending a good deal of your time answering tenant phone calls, scheduling maintenance repairs, and collecting rent, it\u2019s a good idea to hire a property management company. Think about it: do you really want to be the person who gets called at 3 a.m. when a pipe bursts?<\/p>\n So you’ve started to renovate the bathroom of your rental property, and just realized you didn’t pull a required permit.<\/p>\n Or maybe you’ve completed a time-intensive DIY project only to realize that something’s not up to code. This is when a specialized contractor would have saved you time<\/a>, headaches, and potentially legal fees as well. Because contractors are licensed by the state, they have to guarantee that their work meets code requirements<\/a>.<\/p>\n Working with an accountant can be extremely beneficial once tax time arrives. A good one can save you by knowing regulations like the 1031 exchange<\/a>, a section of the tax code that allows a real estate investor to defer all capital gains taxes by selling an investment property, then reinvesting the proceeds into a new (like-kind) investment property.<\/p>\n Or consider the 2018 tax law overhaul. According to an analysis by the Real Wealth Network<\/a>, this has given real estate investors the opportunity to claim more deductions, as well as take advantage of a lower tax rate, which could encourage investors to expand their holdings.<\/p>\n![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/05\/investing-in-rental-real-estate-texting.jpg\")
<\/a>1. Rental income won\u2019t be as \u201cpassive\u201d as you imagine.<\/h2>\n
\n
\nNot telling you about serious maintenance issues promptly, or failing to report late rents in a timely manner.<\/li>\n
\nSuch as checking the appliances and disposal, taking pictures of damage, and inspecting for plumbing leaks before tenant move-in or move-out.<\/li>\n
\nMany property management companies have agreements with certain maintenance vendors, which on its own is not a problem\u2014however, if the vendors are not delivering quality work, or the company is getting \u201ckickbacks\u201d (benefiting financially from giving those vendors work), then there\u2019s a chance you\u2019re not necessarily getting the best level of service.<\/li>\n<\/ul>\n\n
\nAsk your real estate agent, fellow rental investors, business contacts, as well as anyone you know who\u2019s currently renting or has rented locally in the recent past.<\/li>\n<\/ul>\n\n
\nIn addition to learning about the company and its processes, pay attention to more subtle details, too. Does the person look and act professionally? Do they seem knowledgeable? Are they the type of person that you could see both yourself and potential tenants wanting to deal with?<\/li>\n<\/ul>\n\n
\nDo they list them only on their website, or do they take advantage of large rental websites? Are they active on social media? According to the Nationwide blog, about 90% of renters start their rental search online, so it\u2019s vital that the company has a strong online presence.<\/li>\n<\/ul>\n\n
\n<\/b>While you can learn a lot about a company from scoping out their website and talking to the property manager, the only way to truly see how they treat their properties and tenants is to talk to the tenants themselves. Ask current tenants whether their maintenance issues are dealt with promptly, whether the property was in good shape when they moved in, and whether they intend to renew their lease and why.<\/li>\n<\/ul>\n2. Successful real estate investing requires understanding the market on a micro-level.<\/h2>\n
![\"A](\"https:\/\/www.homelight.com\/blog\/wp-content\/uploads\/2019\/05\/investing-in-rental-real-estate-agent.jpg\")
<\/a>3. You\u2019ll need professional help.<\/h2>\n
A real estate attorney<\/h4>\n
A property manager<\/h4>\n
A contractor if you\u2019re doing repairs or renovations<\/h4>\n
An accountant<\/h4>\n
A real estate agent who has investment experience<\/h4>\n