“Invest in property”, they said. “Property only increases in value”, they said. “Mailbox money”, they called it. These, and many other golden nuggets of advice represent all the voices in your head as you consider taking the plunge and purchasing your first investment property.
There are many positives to purchasing property with the intent to turn it into a profitable venture. But there are also dangers that must be addressed. This article will focus on three of the most common areas where money is made (saved) or lost.
Make your Investment Property Work for You
1. Let’s talk taxes
If you’re not careful, property taxes can sneak up and bite you. Every dollar that you have to pay cuts directly into your bottom line. And because taxes are assessed annually and rates change from year to year, they are easily overlooked in the big picture of profit and loss.
When considering an investment property, take into consideration the county in which you purchase. Each county in Colorado determines it’s own tax rate based upon how much revenue they need. A complete chart of Colorado property tax rates is available here: https://smartasset.com/taxes/colorado-property-tax-calculator
2. The teeter-totter of insurance
Insurance is a must for your rental property - that is a given. What’s not quite as simple is the amount you will pay, and what kind of coverage you will get for that amount. Keep in mind - just like with taxes, every dollar you spend diminishes your bottom line. That said, it’s not always the wisest move to go with the least expensive product.
Especially in real estate, insurance is your safety net in the event of catastrophic occurrences. Right off the bat, you should investigate whether there are any major claims on the property in recent years. You must also be aware of the possibility of natural disasters. Is the property in a flood plane? Does the occurrence of hail cause regular damage? All of these factors contribute what amount you will pay for insurance premiums.
It’s of the utmost importance to read your insurance policies for the fine print and details. Know what your policies cover. Know what they will not cover. Know your limits, and choose your deductibles wisely.
3. The value of a professional manager
One of the biggest, and most costly mistakes landlords make is that they believe they can save money by managing their properties themselves. Unless you are a real estate professional, this can be a very expensive decision.
Your time is valuable. That is to say - it has an actual dollar amount attached to it. If you are the one who has to take the call in the middle of the night to repair a broken water pipe, this truth gets very real, very fast. Every time you have to shop for a new appliance, repair a broken fence or issue an eviction to a tenant, you are cutting into the net VALUE of owning investment property.
Professional property managers do all of this and much more, in most cases saving you money and offering you the peace of mind you really desire. Management companies know how to budget for the life cycles of your appliances, exterior maintenance and the myriad of other expenses that come along with investment properties. They find the right tenants, sign the proper documents, and remove any and all problems - all for their regular fee, which is typically accounted for within the negotiated amount of rent that they collect each month.
Oh… and they also keep their fingers on the pulse of the market, and so they can advise you on property taxes and insurance policies as well.
These are just three of the many considerations a landlord must factor into the decision to invest in property to lease. Our recommendation is to consider calling a professional management company as your first step to making sure all future decisions are profitable. We stand ready to accept your phone call: 720-989-1996 or contact us here.