Real estate is typically a great investment. It generally increases in value and can provide you with a regular monthly income. Although this industry has greater stability than other investments, such as the stock and commodities markets, several factors can affect it. The following are some challenges many property investors encounter and how to avoid them:
Volatility
Like other markets, real estate values are constantly moving up and down because they are dependent on other industries and external factors. For example, geopolitical, economic, and societal factors can impact your property value.
First, look to established real estate professionals for property investment advice. They can provide you with key tips and tricks to combat any volatility you may find.
Also make sure to save for unforeseen expenses, lost income and adjusting property values. For example, the economy may make it difficult for individuals to pay their rent, leading to vacancies, but you still need to pay your mortgage. Therefore, set up a reserve fund and don’t overextend yourself.
Invest in the right areas. Choose safer investments and solid deals on properties with lower risk. Diversify your property types, so you can counteract the loss of income and still pay your debts.
Finally, keep tight control over your expenses. Learn what can be cut when the market adjusts downward. However, don’t skimp on maintenance. When a tenant calls with a problem, fix it immediately. It is always better to have good, reliable, loyal tenants.
Fewer Properties on the Market
During housing booms, you may find a limited inventory of available properties. When mortgage payments are lower than rental payments, people start purchasing properties rather than renting them. Also, when an area is seen as especially attractive, it may see a population boom that could significantly reduce the number of properties on the market.
The key is to build a strong investment team. This could include a realtor, mortgage broker, real estate attorney, CPA, and reliable contractor. These individuals will let you know about new properties on the market, properties that aren’t on the market but may be soon, and properties that could be easily converted into something else. When inventory is short, you need reputable real estate professionals who can tell you about off-market listings.
You may also search for “For Sale by Owner” properties or those that have expired MLS listings, and contact their owners. If you have been in the market for any length of time, contact previous clients for new properties.
You can also diversify when you find a property shortage. If you can’t find single-family homes on the market, you may consider investing in multifamily properties or land that you can develop. You may also look at commercial properties that can be easily converted.
Liability Increases
As a property owner, you are liable for anything that happens on your property. You can even get into legal trouble based on how you interview or treat your tenants. It can seem as if the government is consistently adding regulations that affect real estate investors.
First, rely on your team to walk you through all the regulations you need to follow during your purchase. Your attorney can also guide you through other aspects of owning real estate. Find great real estate insurance, keep detailed records of all the work you do on the property, and make sure your inspections and repairs are timely and high-quality.
However, your best asset may be a property manager. These individuals and companies understand the current laws and work within these to fill your properties with tenants in a way that limits your liabilities.
Insufficient Occupancy Rates
You may find times when you have difficulty getting your properties rented. If you own residential rentals or apartment buildings, you may encounter periods when people are moving out of rentals and purchasing their own homes. If you own commercial property, an economic downturn may cause companies to lose money and close their doors.
Diversification is a great tool for these situations. However, you should also consider alternative rental strategies. For example, if you are focused on long-term rentals and you suddenly don’t have tenants, consider short-term rentals, such as vacation rentals. You may have extra work to do, but your rental income will be significantly higher.
Adopt a rental retention strategy. Focus on the properties that do have tenants, and make sure they are happy. Seek positive relationships with them. Find ways to keep them in your property, such as giving them a discount on their rent, providing upgrades or ensuring that maintenance and repairs are done quickly. Proper screening will also prevent bad tenants who will damage your property, not fulfill their leases or pay their rent. A property management team can help with these strategies.
Focus your property listings on any upgrades or amenities you offer. If your listings are old, update them. Focus on location if your rentals are located in high-demand areas. Don’t hesitate to market your properties online, on rental listing sites, with property management companies, etc.
These are only four of the most common challenges property investors face, but if you have a strong team and are prepared with solutions, you can experience success.
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