Hands off real estate investment sounds like a dream. Real estate investors can kick back and relax while other people worry about the day-to-day details, leaving you to chill while the money rolls in. Right?
We hate to break it to you, but no investment comes that easily—not truly successful investments, anyway. Not the kind that come with long term, mind-blowing success and the results that you really want.
(You know the kind we’re talking about!)
No, truly successful real estate investors know that even passive investments demand work. They need input, and there’s no time to kick back and twiddle our thumbs. Even if you don’t have to be involved in the daily going-ons of your investments, risk management and due diligence are the big two that should always be top of mind.
Are you looking out for the well-being of your financial future? Are your decisions setting you up for success...or failure?
Foresight goes a long way in this business, and risk management is a big saving grace. The question is, do you know what your risks are, and are you doing a good job at minimizing them?
1. Rental Prices
Hold on, you may ask. How are my prices a risk? Rent prices are a constant balancing act. You want to stay competitive in your rental market and also make a profit. Right now, nationwide, there seems to be a surge in higher rental prices—which seems like it’s a good thing for investors, but the lack of affordability could come back to bite us as it hurts renters and the economy in general.
There are other considerations, too. What if the economy takes a turn and you aren’t able to charge as much as you once were? Can you still support the expenses you have to run the property?
Naturally, the best way to fight this is to buy in a market that’s thriving, not diving. It also means not going for those bottom-of-the-barrel properties in bad areas. You won’t be able to charge as much in rent, ever.
Everyone knows that vacancies are the most costly time for real estate investors. The best way to deal with that situation is to minimize the length of a vacancy as much as possible.
How do you do that, exactly?
One, have a property management team with a lot of experience and that you trust. Remember, you don’t want them to skip their due diligence when it comes to vetting your prospective tenants. Background checks, proof of employment, the works. Having an experienced team that knows this process well and can perform it quickly and efficiently is going to go a long, long way.
There’s also marketing: do you have a plan to bring in tenants? How much consideration do you give your curb appeal, showings, and property photos? Paying attention to good marketing is going to help you fill vacancies more quickly.
3. Fitting Square Pegs Into Round Holes
A lot of risk happens when real estate investors try to make things work when they just don’t work. Namely, numbers. Sometimes we want so badly for a property, a deal, or a partnership to work out that we’re willing to massage the numbers so that they look better.
We try to talk ourselves into something that’s really not right for our portfolio for whatever reason, and end up with something that’s not particularly profitable, if it’s not an outright disaster. Remember, the numbers speak for themselves if we look at them objectively.
4. Maintenance & Repair
Investment properties, unlike a great many other investments, are tangible. Because of that, they take a lot more time and attention, because they can be damaged!
Be sure to have a team keep up with seasonal maintenance and ensure that your property manager is periodically inspecting the property. Remember to take care of maintenance requests promptly and to address problems with real fixes or replacements...not band-aids. Quick-fixes will ultimately do more damage, not save you money.
And finally, as the ultimate golden rule of property buying: never, ever buy a property with a professional property inspection.
For real estate investors, there will always be risk. It’s just part of the equation! But that doesn’t mean it’s not worth it. Do what you can to mitigate risk and do your due diligence and you’ll be primed for success.