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 carry some risk, many investors are drawn to real estate because it appears to be a safer route to growing wealth. And if the circumstances are right, it can definitely be. We will now be looking at some of the inherent risks of real estate investing- and how rental property owners manage 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. Expensive hidden structural problems or a poor location can be reasons why a Weeki Wachee investment property can be “bad”.
To avoid getting yourself into a bad deal, you should do as much research on the property, the neighborhood, and the local market before moving forward. You should have a detailed inspection done, preferably by an independent inspector. You should also talk to neighbors and city officials, check plans for possible zoning changes or new construction, and conduct a thorough market analysis.
Negative Cash Flow
Another risk for rental property investors is paying more monthly expenses than what comes in as rental income. This is known as negative cash flow. Some of the reasons for negative cash flow are overspending on repairs, inaccurate rental rates, or a high vacancy rate. High financing costs are a contributing factor too.
To keep your cash flows positive, learn as much as you can about estimated costs and calculate your expected return on investment (ROI) before buying the property. 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 don’t think you are doing it correctly, consider asking Real Property Management Connection experts for assistance.
One of the biggest reasons investors hesitate before buying single-family rental properties is that they do not want to end up with 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 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. For one, you can carefully evaluate every prospective tenant before leasing your property to them. You could run a complete background check and get as much information as you can about their personal and financial situation. You could also contact former landlords for feedback. Be on the lookout for red flags and instances when the tenant can’t seem to provide the information you ask for. If you notice anything, it’s 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 Weeki Wachee 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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