Potential Challenges When Investing in Rental Properties
Rental properties are buildings or houses that are rented or leased out based on agreements made between investors or owners (landlords/landladies), and individuals often referred to as “renters” or “tenants”.
Rental properties may include anything between multi-unit apartments/houses, standalone single-family apartments/houses, single houses, condos (condominiums), mobiles houses, vacation houses, etc.
Although rental property investing is an interesting venture, it’s not always fun because of the challenges that rental property or real estate investors and owners are usually exposed to.
The potential challenges listed in this article are not discussed in order to discourage anyone from exploring rental property or real estate investing; rather, they are discussed to create awareness about potential challenges people need to know when investing in rental properties.
The following are the major potential challenges that could be experienced when investing in rental properties:
1. Investing in rental properties can be time-consuming
For many investors, lack of sufficient time can be a major challenge or issue when investing in rental properties. Depending on how deep an investor gets into it, rental property investing could take over their time and life, as much as any other passion.
While a rental property investor or owner is dining or sleeping, they can find themself unconsciously and consistently scheming on what next to do about one rental property or another.
In addition, problems can arise at any time and on any day, in the form of maintenance emergencies and unexpected rehabilitation works of various kinds which don’t usually have consideration or respect for an investor’s personal time.
However, an investor’s rental property business will run in the manner that it has been set up to operate. If an investor decides to be involved in everything that pertains to their rental properties, then they will likely run into challenges that would stem from lack of sufficient time.
Rental property investors should know how and when to outsource certain issues so that they can have sufficient time to focus only on fewer ones that border around the most important aspects of their rental property business.
2. Investors can lose their investments when investing in rental properties
Not all rental property investors or owners are successful at rental property investing. Like other types of investment, rental properties are a form of investment that could be lost, especially when investors or owners aren’t educated enough, or don’t have adequate networks or systems to run their rental property businesses as effectively as possible.
3. Investors can come across difficult people when investing in rental properties
When investing in rental properties, challenges arise from facing or dealing with difficult people and their characters which aren’t always easy to get along with.
Difficult people can range from contractors to tenants to bankers and other types of challenging individuals; worst still, investors might have to associate or interact with difficult people under extremely difficult circumstances.
In many cases, an investor can limit their exposure to difficult people; for example, in some situations, they may have to sack or change a contractor or evict a tenant in order to experience a smooth or smoother sail in their rental property business.
4. Investing in rental properties usually involves a lot or considerable amount of paperwork and bookkeeping
A lot of documentation in the form of paperwork and bookkeeping has to be done when investing in rental properties. In order to ensure that their businesses are on track, investors have to constantly keep accounts of their activities, expenditures, and profits; this can pose a great challenge, especially to investors who aren’t organized.
Usually, documents of taxes, leases, ROI/profits, expenditures, insurances, and activities have to be filed, re-opened, read, and even studied. A considerable amount of time has to be spent on doing necessary paperwork which needs attention because it is crucial to the success of rental property business.
5. When investing in rental properties, the total operating profit acquired might not always increase as desired
Especially during the early years of an investor’s rental property business, there might be little or no operating profit, except in cases where large down payments are made for rental property deals; even if the total operating profit is increased from deals, it might not always increase to the desired extent.
Depending on the local economy, an investor might not always be able to predict whether their total operating profit will rise or fall because expenses may rise or fall more quickly or slowly than rents. That’s why investors must ensure that they have some money left in the tank in order to be capable of making it through financially tough times which can appear unexpectedly.
When investing in rental properties, transaction costs (loan fees, agent fees, etc.) and taxes can affect the operating profit of a rental property business; in addition to transactions costs, federal and state governments have to receive tax from investors after investors make positive net returns from their investments.
6. When investing in rental properties, it can take a considerable amount of time to build wealth
Investing in rental properties is not a fast route to riches: it isn’t a get-rich-quick scheme. Although it’s true that some rental property owners and investors have successfully acquired wealth through their rental property businesses, their wealth wasn’t acquired overnight.
In order for any investor to generate wealth when investing in rental properties or real estate, they need to apply effective strategies and take consistent actions over a considerable or long period of time, even in the midst of the ups and the downs that usually come along with investing in rental properties.