When people talk about investing, you often hear a saying that the more risk you take, the higher your chances for a big payoff. It also follows that 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 carry some risk, many investors are drawn to real estate because it appears to be a safer route to growing wealth. And the right circumstances can certainly let it 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
Probably the biggest reason a rental property investor loses money on their investment is when the property 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 Stow investment property can be “bad”.
Even when you can’t anticipate all of these things before buying a property, you could still avoid getting yourself into a bad deal by doing as much research on the property as you can, the neighborhood, and the local market as you can before you decide. 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. 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.
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. You should also know the other key numbers all rental property investors need in order to evaluate a rental property properly. If you are not sure if you are doing it the right way, consider asking Real Property Management Valor Team experts for assistance.
One of the biggest hesitations investors have before buying single-family rental properties is the risk of encountering 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. 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. 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 Stow 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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