When people talk about investing, you often hear a saying that the more risk you take, the higher your chances for a big payoff. Consequently, risky investments also come with a higher chance of failure. So how risky can investing in single-family rental homes get? 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, in the right circumstances, it can 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. A Pineville investment property can be “bad” for a number of reasons, some of which are hidden structural problems that are too expensive to fix or just choosing a poor location.
You could avoid getting yourself into a bad deal by doing thorough research on the property, the neighborhood, and the local market before you go ahead and buy a property. At the very least, you should conduct a detailed inspection (preferably with an independent inspector), talk to neighbors and city officials, check zoning plans for any changes or new construction, and do a thorough market analysis.
Negative Cash Flow
Another risk that rental property investors run into is paying more expenses every month than what they get in rental income. This is known as negative cash flow. Some concerns related to negative cash flow issues are spending too much on repairs, not setting an accurate rental rate, or having a high vacancy rate. High financing costs contribute to this 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. You should also know the other key numbers all rental property investors need in order to evaluate a rental property properly. If you are unsure about how you are doing things, consider asking Real Property Management Charlotte Metro experts for assistance.
Problem Tenants
One of the biggest hesitations investors have before buying single-family rental properties is the risk of encountering a problem tenant. Problem tenants can be extremely costly and frustrating to deal with, especially if you are not yet that good with tenant relations. While you can never completely avoid a problematic tenant, there are ways you can lower your chances of ending up with one. One of these is to really evaluate every prospective tenant completely before agreeing to lease your property to them. In addition to a complete background check and getting as much information about their financial and personal situation as you can, also ask for feedback from their former landlords and references. 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.
Still, one of the best ways to manage risks involved in rental real estate investing is to have the right experts on your side. This is why hiring a quality Pineville 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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