When it comes to investing, there is a saying that the more risk you take, the better your chances for a big payoff. Undeniably, risky investments also contain a higher chance of failure. So when it comes to investing in single-family rental homes, how risky is it? Even though all investments have some risk, several investors are attracted to real estate because it seems like a safer route to growing wealth. And it absolutely can be, in the correct conditions. In what follows, we will investigate some of the inherent risks of real estate investing – and how rental property owners can manage those risks.
The Bad Deal
One of the common causes a rental property investor will lose money on their investment is that the property has far more problems than predicted. It is, in short, just a bad deal. A Georgetown investment property can be “bad” for multiple reasons, such as discovering hidden structural problems that will be expensive to address or choosing a poor location.
While not all of these factors can be expected before you obtain a property, you may be able to avoid getting yourself into a bad deal by doing as much research on the property, the neighborhood, and the local market as you can before progressing. At a minimum, you must have a detailed inspection done (hire an independent inspector, preferably), consult neighbors and city officials, check for plans for zoning changes or new construction, and execute a thorough market analysis.
Negative Cash Flow
Another risk that rental property investors sometimes run into is paying more expenses each month than you get in rental income. This is known as negative cash flow. Spending too much on repairs, not knowing how to set an accurate rental rate, or experiencing a high vacancy rate are all things that can lead to chronic issues with negative cash flow. So can high financing costs.
To keep your cash flows going in a positive direction, you have to learn as much as you can about estimated costs and calculate your expected return on investment (ROI) before you purchase. There are multiple other key numbers that all rental property investors need to understand to evaluate a rental property suitably. Think about asking Real Property Management All Connect experts for help if you’re unsure whether you’re doing it right.
Problem Tenants
Perhaps one of the frequent causes why some investors are hesitant to purchase single-family rental properties is the possibility of ending up with a problem tenant. Problem tenants can be incredibly expensive and annoying to cope with, particularly if you are new to tenant relations. While there are no guarantees that you can fully prevent a problematic tenant, there are things you can do to minimize your chances of ending up with one. For instance, be certain to evaluate every prospective tenant attentively and thoroughly before agreeing to lease your property to them. Aside from running a complete background check and obtaining as much information about their financial and personal situation as you can, you need to contact former landlords and references as well. If you notice any red flags or the tenant can’t seem to provide the information you ask for, it’s best to move on.
One of the best ways to mitigate the risks of investing in rental real estate is to have the right team of experts on your side. This is why hiring a quality Georgetown property management company like us is a great option for rental property investors. Our local market experts can assist you with market evaluations, neighborhood recommendations, vetting tenants, tenant communication, and much more. Contact us online to learn more.
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