When it comes to investing, there is a saying that the more risk you take, the better your chances for a big payoff. For sure, risky investments also convey a higher chance of failure. So with regards to investing in single-family rental homes, how risky is it? While all investments have some risk, most investors are drawn to real estate because it tends to be a safer route to growing wealth. And it totally can be, in the right conditions. In what follows, we will talk about some of the inherent risks of real estate investing – and how rental property owners can manage those risks.
The Bad Deal
One of the major causes 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. A Tigard investment property can be “terrible” for numerous reasons, including determining hidden structural problems that will be costly to fix or choosing a poor location.
While not all of these factors can be predicted before you acquire a property, you may be able to prevent a terrible deal by doing as much research on the property, the neighborhood, and the local market as you can before proceeding. At the very least, you should have a detailed inspection done (hire an independent inspector, if needed), speak to neighbors and city officials, check for proposals for zoning changes or new construction, and conduct a thorough market analysis.
Negative Cash Flow
Another risk that rental property investors sometimes face is paying more expenses each month than you get in rental income. This is identified as negative cash flow. Spending a lot on repairs, not realizing how to set an accurate rental rate, or having a high vacancy rate may all result in significant issues with negative cash flow. So can high financing costs.
To keep your cash flows going in a positive direction, you should learn as much as you can about estimated costs and calculate your expected return on investment (ROI) before you buy. There are many other key numbers that all rental property investors need to understand to evaluate a rental property appropriately. If you’re doubtful whether you’re doing it appropriately, consider asking Real Property Management Assurance experts for support.
Probably one of the main explanations some investors hesitate before acquiring single-family rental properties is the chance of having a problem tenant. Problem tenants can be extremely expensive and irritating to deal with, primarily if you are new to tenant relations. While there are no guarantees that you will never encounter a problematic tenant, there are actions you can do to decrease your chances of ending up with one. For example, before agreeing to lease your property to them, you need to evaluate every potential tenant cautiously and entirely. As well as running a complete background check and acquiring as much data about their financial and personal situation as you can, you should also contact former landlords and references. If you discover any red flags or the tenant cannot provide the information you ask for, it is recommended to move on.
Having the appropriate team of experts on your side is one of the best ways to mitigate the risks of investing in rental real estate. This is the reason employing a quality Tigard property management company like us is an excellent option for rental property investors. Our local market experts can assist you with market evaluations, neighborhood recommendations, vetting tenants, tenant communication, and many more. Contact us online to learn more.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.