7 Common Challenges of Investing in Rental Property

In 2019, according to Pew Research Center, 36% of the nation’s households were renters. With such a huge proportion of the market being renters, there should be plenty of opportunity for landlords to make a steady income with rental properties. 

Yet, if you choose to go in blindly when real estate investing, you may find yourself in some tricky situations you could have avoided. In this guide, we’ll run you through seven common challenges of investing in rental property. Be sure to take note of these mistakes to give yourself a strong chance of succeeding in your property rental endeavors.

Now, let’s run through these mistakes one by one. 

1. Failure To Look Beyond Your Local Market

You may have heard advice saying that you should stick to your local market when real estate investing. These advisors believe that if you invest elsewhere it will be hard to keep tabs on your investment property.

However, these days, digital communication means you don’t need to be around your rental properties all the time. You’ll be able to contact your property management company with ease and speak to them using video chat. You can even ask them to live stream a video when they are checking the property for you. 

But, the main reason you should consider markets further afield is there may be much better investment options available. Plus, the type of tenants you get in other areas might be more reliable than where you live now.

If you plan to have multiple properties, then it makes sense to spread them out over different regions. Why?

In the event of an economic downturn, some regions may be affected more than others. By spreading out your property portfolio geographically, you also spread out the risk if the economy takes a turn for the worse.

2. Not Maximizing Your Real Estate Cash Flow

Before you even think about buying rental real estate, you need to have solid plans in place to maximize your real estate cash flow. There are various things you should consider to ensure you make the most out of your investments.

For instance, you could plan to add new properties over a specific timeframe to increase your income. You could also plan to implement expense reduction tactics once you’re in business. 

3. Overestimating Renovation and Repair Costs

When you first get your rental property. it can be tempting to change all the decor and update a lot of the facilities inside. Before you jump straight into doing this, it’s a good idea to have a clear and realistic budget in mind.

If you don’t have a budget, you risk spending more money than is necessary as a real estate investor. Although, try to avoid underspending on necessary improvements as you may deter potential tenants.

4. Misunderstanding Debt

There are various positive aspects to getting a loan when property investing, such as gaining leverage. Yet, it’s crucial that you take time to make calculations about what your ROI will be if you are going to get a mortgage. 

You have to factor in instances where you might not be able to rent the property for a certain period. You could set this expected timeframe to be anywhere between a month to six months even! Whatever the case, if you are not able to rent out your property, will you be able to keep up with the mortgage payments? 

5. Limited Savings for Repairs and Maintenance

You also need money stashed away for repairs and maintenance, alongside the chance of gaps in rental income. You’ll be surprised how all of a sudden a major issue can occur like the need for a boiler replacement.

A good way to plan for this is to save around two percent of the property’s value every year for these expenses. You can put this money into a savings account that you use specifically for repairs and maintenance of your property.

6. Not Carrying Out Proper Market Analysis

If you are a beginner real estate investor, it pays to put time into learning how to analyze the market to overcome many landlord challenges. Without the right knowledge, how can you make good judgments on buying and owning a property you wish to rent?

Investment property analysis is also a vital skill to learn if you want to do a good job of property investing. The whole idea is that you are seeking the best ROI that will also be stable for the medium to long term. 

7. Not Having Enough Equity in Your Property

The equity in your property is essentially the amount of downpayment you provide when you get a mortgage. If you have very little equity in your property your monthly mortgage payments are likely to be significant.

When you have a lot of equity in your property, you tend to have smaller payments every month. But why is this so important? 

One major risk of buying rental real estate is overlooking an economic downturn. If there is a downturn, tenants may not be able to fulfill their rental obligations. If this is the case, will you have enough to pay off the mortgage payments every month? 

Also, if you have a timeframe where you have no tenants, it’ll be much easier to pay off the smaller mortgage amounts because you have more equity in your property. 

Investing in Rental Property the Right Way

Investing in rental property will always have its challenges. Learning about the common challenges property owners face should give you the confidence to push forward and get down to business. Our final best piece of advice is to keep a business-orientated approach and focus on your ROI.

Read more advice like this on our website.