In investing, there is a saying that the higher risks you take, the higher your chances for a big payoff. Consequently, risky investments also come with a higher chance of failure. So where on the risk scale would investing in a single-family rental home fall? While all investments involve some measure of risk, most investors think of real estate as a safer route to growing wealth. And if the circumstances are right, it can definitely be. Here are some of the inherent risks of real estate investing, and how rental property owners mitigate those risks.
The Bad Deal
One of the biggest causes of loss for a rental property investor is an investment property that has far more problems than anticipated. It is, in short, just a bad deal. Some reasons a Person County investment property can be “bad” include discovering hidden structural problems that will be too expensive to fix or choosing a poor location.
You could avoid getting yourself into a bad deal by doing thorough research on the property, the neighborhood, and the local market before you go ahead and buy a property. You should also get a detailed inspection done (if possible, hire an independent inspector), talk to neighbors and city officials, check for plans for zoning changes or new construction, and do a market analysis.
Negative Cash Flow
Another risk rental property investors often run into is incurring more monthly expenses than rental income. This is known as negative cash flow. Some concerns related to negative cash flow issues are spending too much on repairs, not setting an accurate rental rate, or having a high vacancy rate. High financing costs are a contributing factor too.
If you want to keep your cash flows positive, you need to learn about estimated costs and calculate your expected return on investment (ROI) before buying. There are also other key numbers that all rental property investors need to know to be able to evaluate a rental property properly. If you are unsure about how you are doing things, consider asking Real Property Management Impact experts for assistance.
Problem Tenants
One of the biggest hesitations investors have before buying single-family rental properties is the risk of encountering a problem tenant. Problem tenants can really be frustrating to deal with and can cost a lot, too. This can be aggravated if you are new to tenant relations. While you can never completely avoid a problematic tenant, there are ways you can lower your chances of ending up with one. One of these is to really evaluate every prospective tenant completely before agreeing to lease your property to them. This could include a complete background check, gleaning as much information about their financial and personal situation as you can, as well as contacting former landlords and references. If the tenant seems to have difficulty providing the information you ask for, or if you notice any red flags, it is best to move on.
Having the right team of experts on your side is still one of the best ways of managing the risks that come with rental real estate investing. This is why hiring a quality Person County 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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