When it comes to investing, there is a saying that the more risk you take, the better your chances are for a big payoff. Naturally, risky investments do have a higher chance of failure. So with respect to investing in single-family rental homes, how risky is it? Though all investments have some risk, several investors are interested in real estate due to the fact that it looks as though it’s a safer route to growing wealth. And it primarily can be, in the right circumstances. In subsequent paragraphs, we will take a look at a few of the inherent risks of real estate investing – and how rental property owners can manage those risks.
The Bad Deal
One of the major reasons a rental property investor will lose money on their investment is that the property has a lot more problems than first anticipated. It is, in short, just a bad deal. A Miami investment property can be “bad” for quite a lot of reasons, like finding hidden structural problems that will be quite expensive to correct or choosing a poor location.
Though not all of these things can be discovered before you acquire a property, you could be able to evade getting yourself into a lousy deal by doing as much research on the property, the neighborhood, and the local market as you can before deciding to make a move. At the very least, you should have a detailed inspection done (hire an independent inspector, whenever possible), talk to neighbors and city officials, verify for considerations for zoning changes or new construction and execute a thorough market analysis.
Negative Cash Flow
Another risk that rental property investors at times encounter is paying more expenses each month than you actually get in rental income. This is referred to as negative cash flow. Spending quite a lot on repairs, not grasping how to set an accurate rental rate, or dealing with a high vacancy rate are all things that can give rise to chronic issues with negative cash flow. So can high financing costs.
To keep your cash flows going in a positive direction, you ought to learn about estimated costs and calculate your expected return on investment (ROI) before you purchase. There are further key numbers that all rental property investors must recognize to evaluate a rental property appropriately. If you aren’t positive whether you’re executing it properly, think about asking Real Property Management Sunshine experts for help.
Perhaps one of the main causes some investors hold back from purchasing single-family rental properties is the risk of winding up with a problem tenant. Problem tenants can be exceedingly expensive and discouraging to handle, in particular, if you are new to tenant relations. Notwithstanding that there are no guarantees that you can totally keep away from a problematic tenant, there are techniques to decrease your chances of ending up with one. To cite an instance, make sure to evaluate every potential tenant thoroughly and completely prior to agreeing to lease your property to them. Along with running a complete background check and obtaining as much information with respect to their financial and personal situation as you can, you should furthermore contact former landlords and references. If you find out any red flags or the tenant can’t seem to furnish the information you are asking for, it’s right to just move on.
One of the appropriate ways to mitigate the risks of investing in rental real estate is to have the appropriate team of experts on your side. This is exactly why contracting an ideal Miami property management company like us is a great 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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