When it comes to investing, there is a saying that the more risks you take, the better your chances for a big payoff. Obviously, risky investments also hold a higher chance of failure. So in terms of investing in single-family rental homes, how risky is it? Even though all investments have some risk, many investors are attracted to real estate since it appears like a safer route to growing wealth. And it really can be, given the appropriate conditions. In the following sections, we will discuss some of the inherent risks of real estate investing – and how rental property owners can manage those risks.
The Bad Deal
One of the main reasons a rental property investor will lose money on their investment is that the property has considerably more problems than expected. It is, in short, just a bad deal. A Saginaw investment property can be “bad” for several reasons, such as exploring hidden structural problems that will be costly to repair or choosing a poor location.
While not all of these factors can be foreseen before you purchase a property, you may be able to prevent putting yourself into a terrible deal by doing as much research on the property, the neighborhood, and the local market as you can before going ahead. At a minimum, you need to have a detailed inspection done (hire an independent inspector, if feasible), communicate with neighbors and city officials, look for proposals for zoning changes or new construction, and perform a thorough market analysis.
Negative Cash Flow
Another risk that rental property investors sometimes encounter is paying more expenses each month than you receive in rental income. This is called negative cash flow. Paying too much on repairs, not understanding how to set an accurate rental rate, or encountering a high vacancy rate are all reasons that can result in chronic issues with negative cash flow. So can high financing costs.
To keep your cash flows going in a positive direction, you must learn as much as possible about estimated costs and calculate your expected return on investment (ROI) before you purchase. There are numerous other key numbers that all rental property investors must understand to evaluate a rental property effectively. If you are unsure whether you’re doing it right, think about asking Real Property Management 360 experts for advice.
Problem Tenants
Perhaps one of the greatest reasons some investors worry before purchasing single-family rental properties is the possibility of ending up with a problem tenant. Problem tenants can be highly expensive and stressful to manage, particularly if you are new to tenant relations. While there are no guarantees that you can fully eliminate a problematic tenant, there are techniques to lessen your chances of ending up with one. For instance, don’t forget to evaluate every potential tenant cautiously and comprehensively before agreeing to lease your property to them. Along with running a complete background check and getting as many details about their financial and personal situation as you can, you must also contact former landlords and references. If you detect any red flags or the tenant can’t seem to offer the information you requested, it’s better to move on.
One of the ideal methods to mitigate the risks of investing in rental real estate is to have the right team of experts on your side. This is why employing a competent Saginaw property management company like us is a good option for rental property investors. Our local market experts can help you with market evaluations, neighborhood recommendations, vetting tenants, tenant communication, and many more. Contact us online to learn more.
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