In investing, there is a saying that the higher risks you take, the higher your chances for a big payoff. Realistically, risky investments also carry a higher chance of failure. So where on the risk scale would investing in a single-family rental home fall? While all investments have a certain level of risk, most investors are drawn to real estate’s seemingly safer route to wealth. And, in the right circumstances, it can be. The following are some of the inherent risks of real estate investing, as well as how rental property owners can mitigate those risks.
The Bad Deal
One of the biggest reasons a rental property investor will lose money on an investment is if the property just has way more problems than anticipated. It is, in short, just a bad deal. Expensive hidden structural problems or a poor location can be reasons why a Chowchilla investment property can be “bad”.
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. At the very least, you should conduct a detailed inspection (preferably with an independent inspector), talk to neighbors and city officials, check zoning plans for any changes or new construction, and do a thorough 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. Overspending on repairs, not setting an accurate rental rate, or having a high vacancy rate are some things that can lead to long-term issues with negative cash flow. Another contributing factor is the high financing costs.
Learning about estimated costs and calculating your expected return on investment (ROI) will help keep your cash flows on the positive side. You should also know the other key numbers all rental property investors need in order to evaluate a rental property properly. If you don’t think you are doing it correctly, consider asking Real Property Management Valley Wide experts for assistance.
Probably one of the scariest reasons that make investors hesitate before investing in a single-family rental property is the risk of ending up with a problem tenant. Especially if you are new to tenant relations, problem tenants can be extremely frustrating –and costly– to deal with. While there is no guarantee that you can avoid a problematic tenant, there are ways you can slim down your chances of ending up with one. One way to do this is to meticulously evaluate every prospective tenant before leasing your property to them. This could include a complete background check, gleaning as much information about their financial and personal situation as possible, and contacting former landlords and references. Any red flags that you notice, or if the tenant seems to have a hard time providing information, is a sign for you to move on.
One of the best ways you can mitigate the risks of investing in rental real estate is by having the right experts on your side. This is why hiring a quality Chowchilla 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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