Single-family rental properties can provide a positive cash flow, build wealth and create an outstanding return on your investment. However, as with any kind of investment that gives the possibility of significant benefits, there are risks to be regarded as well. As an investor, you have the option of forging ahead and hoping for the very best or taking the opportunity to learn about the possible pitfalls and how to prevent them.
While there isn’t any way to ensure that you won’t ever suffer financial setbacks with your single family rentals, there are lots of measures you can take to decrease the danger of those negative events happening. By maintaining minimum losses, investors can collect the capital required to keep on expanding their portfolio.
Below are six common possible pitfalls in single-family rental investments and strategies for preventing them.
1. Thinking you’re buying an investment, rather than investing in a business:
Most investments are genuinely passive — you determine when to buy and sell, but external factors, like the general economy and international events, determine the return on your investment. But purchasing a single family rental house is similar to beginning a small company. While local market conditions affect your returns, your decisions and actions have the best impact.
Line up your own experts. Be ready to spend the time required to learn the business and manage your properties.
2. Not allowing the amounts drive your purchase decision:
Purchasing a property because you like the way it looks or reminds you of the home you grew up in, is a mistake that experienced investors do not make.
Purchase by the numbers. As opposed to assessing a property from a”Why should I not buy it?” approach. Make the economics of the house market itself to you.
3. Making a lot of improvements:
With single-family leasing investments, the important thing is keeping the property secure up to code, clean and consistent with comps of other rental properties in the region.
Bear in mind that you’re not likely to dwell in the home or resell the house at this moment, so updates you might make to lure buyers aren’t necessary. Perform the repairs and enhancements necessary to maintain a property competitive and attract and maintain good renters.
4. Failing to have sufficient income to pay for unforeseen challenges:
Regrettably, as a property owner, you will probably encounter situations such as deductions which go on longer than expected or an economic recession that forces you to reduce rents. If you do not have the reserves to weather these storms, you can end up in financial trouble.
You can protect yourself in lots of ways, beginning with buying the perfect property at the perfect price so you’re not overextended.
They are your customers. They are paying down your mortgage. You are entrusting them with your investment. Not only is fixing issues with renters that are behind on rent or breaking other terms and conditions of the lease time-consuming and costly, it can be extremely stressful.
Your property manager can deal with all tenant interactions and maintain the property running smoothly while you concentrate on developing your portfolio or just enjoying time with family and friends without the aggravation of renter difficulties.
6. Having properties too far away from one another:
While diversity in your portfolio is advisable, owning properties in a number of states means learning different laws and markets, working with multiple property managers and sellers, finishing multiple state tax returns, doing site visits properties in multiple states etc.
Practice what’s known in the business as”bundling.” This implies using a concentration of properties in only a couple of markets. Bundled properties are much simpler and more efficient to handle, and the local market knowledge you develop can help you make better choices.
Assessing Your Portfolio With Expert Advice
These strategies can help protect you from possible dangers in single-family leasing real estate investing. However, oftentimes, you can save time, effort and cost by working with a property management company as you begin to construct your portfolio. At APG Properties, our experience with the challenges of land ownership and the experience developed in overcoming those challenges can save you from the losses and headaches you might otherwise experience.