When it comes to investing, there is a saying that the more risk you take, the better your chances for a big payoff. Indeed, risky investments also have a higher chance of failure. So when it comes to investing in single-family rental homes, how risky is it? While all investments have some risk, most investors are lured to real estate because it appears like a safer route to growing wealth. And it most assuredly can be in the correct conditions. In this section, we will explore some of the inherent risks of real estate investing – and how rental property owners can manage those risks.
The Bad Deal
One of the most common reasons a rental property investor will lose money on their investment is that the property has far more problems than expected. It is, in short, just a bad deal. An Altamonte Springs investment property can be “bad” for a variety of reasons, such as discovering hidden structural problems that will be pricey to repair or choosing a poor location.
While not all of these things can be anticipated before you buy 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 moving forward. At a minimum, you should have a detailed inspection done (hire an independent inspector, if possible), talk to neighbors and city officials, check for plans for zoning changes or new construction, and conduct 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 referred to as negative cash flow. Allocating excessively on repairs, not determining how to set an accurate rental rate, or having a high vacancy rate may all contribute to persistent 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 you can about estimated costs and calculate your expected return on investment (ROI) before making a purchase. There are numerous other key numbers that all rental property investors should be aware of in order to correctly evaluate a rental property. If you’re not sure whether you’re performing it correctly, try asking Real Property Management Vanguard experts for help.
Problem Tenants
Maybe one of the main reasons some investors hesitate before getting single-family rental properties is the possibility of having a problem tenant. Problem tenants can be incredibly expensive and aggravating to handle, mainly if you are new to tenant relations. Even though there are no guarantees that you will never have a problematic tenant, there are steps you can take to lessen your chances of ending up with one. As an illustration, before agreeing to lease your property to them, be sure to evaluate every potential tenant carefully and completely. Besides running a complete background check and gathering as much data about their financial and personal situation as possible, you should also contact former landlords and references. If you see any red flags or the tenant is unable to supply the information you need, it is advisable to move on.
Having the proper team of experts on your side is one of the greatest methods to mitigate the risks of investing in rental real estate. This is why working with a quality Altamonte Springs 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, among other things. Contact us online to learn more.
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