Rental property affords many benefits for its owners. Apart from providing passive income, it also provides a significant boost to one’s real estate portfolio. However, like most investments, it also has risks that landlords must be aware of. Here are some of them: 

Investing in an Unwanted Rental Real Estate

It does not mean that when you invest money in a real estate property, someone would want it and immediately rent it from you. If your desired property is built in a not-so-desirable rental market, you may find it challenging to look for tenants, and this can result in loss of income due to vacancy. Yet, you still have to pay for the mortgage, maintenance, and taxes. 

You can minimize this risk by investing in a property located in a great rental market. Do a study of which markets’ rental properties are high in demand. You may want to work with a reliable real estate agent to help you choose a property in the area. Consider safety, walkability, parking, and other amenities when choosing a property to invest in. 

Long Vacancy Periods

As mentioned above, long periods of vacancy can affect your cash flow. It is a serious risk that you, as a landlord, must be aware of. This can happen even when your property is located in a good rental market. Why? Sometimes, it is due to poor advertising. When you don’t advertise your property, no one will likely be aware that you are offering your property for rent.

For this reason, other properties similar to yours would get rented out. In short, without advertising, the competition will dwarf you. Similarly, your rental price might be the issue. Research the current rent range in the area so you can ensure that you are not charging too much for the neighborhood and still earn a good profit. You may want to work with a property manager to help you out in this dilemma. 

You can also do well by making your rental advertisements appealing enough to catch the interest of applicants. In general, some landlords maintain a waiting list of potential tenants, so in case of a vacancy, it is easier to move someone in immediately. You can do this practice as well to avoid long vacancy periods. 

Maintenance Costs

Rental properties also need maintenance. However, there may be instances when the maintenance can be so significant that it costs thousands of dollars. For this reason, insurance policies like those from Allstate home insurance would come in handy. Despite this, you have to account for all the damages caused by the tenant and see whether the cost can be covered by their security deposit. To prevent massive repairs, we suggest against buying properties that are more than 15 years old. If you can invest in property less than a decade in age, the better.  

Tenant Delinquency

It is quite common to encounter tenants who cannot pay their rents reliably or a tenant who causes damage to the property that may cause you to shell out more money than necessary. When this happens too often, you can land in financial hot water. Evicting them can cost money also, and you’ll end up looking for another tenant. It is a tedious process. You can minimize this risk by continually reminding tenants of rent, keeping a record of payment records, and charging late payment fees. You should also have a system for screening your tenants, which may include getting an eviction check, credit score information, and criminal record search. 

Any investment comes with associated risks, big or small. It is all about how you manage and prepare for them beforehand that you can easily overcome these risks.