Real estate investments are often perceived as less risky than investing in stocks, since it is very unlikely for you to just lose everything in real estate. While it is true that real estate investing can bring some serious returns in the medium and long run, it doesn’t come without risks. We sought some expert advice in this regard from builder Nitin Agrawal, MD of Swadesh Builders Bhopal.
According to Agrawal, people sometimes get the wrong impression that buying a rental property with the extra cash they have and a loan from the bank will definitely guarantee them quick returns with virtually no risk. He listed top 3 risks that come with buying rental property and becoming a landlord. Take a look:
- Not Being Able to Get Tenants
Buying a rental property doesn’t come with a guarantee of 100% occupancy and quick profits. After you’ve purchased a good property and prepared it for renting, you might get a hard time finding tenants. This problem is especially risky if you’ve taken a loan from the bank to purchase the property expecting that the monthly rent will cover the mortgage payments.
According to builder Nitin Agrawal, the risk of being unable to find a good tenant can be minimized if you do your homework well before purchasing a rental property. Make sure you choose a property that is in high demand. Choosing a location with high occupancy rates can be of great help.
- Having Bad Tenants
The risk of having a bad tenant and getting stuck with him/her could be even worse than the risk of not having a tenant at all. Having bad tenants puts you on the risk of your rent not being paid on time while utility costs get accumulated. Your rental property might also get more damaged that normal use supposes. The Swadesh Builders Bhopal MD suggests going through the process of selecting tenants carefully. Putting some unwritten rules for yourself about what kind of tenants you would feel most comfortable in dealing with might also help.
- Higher Than Expected Expenses
The cost related to being a landlord does not finish with the purchase of the actual rental property. Just like any other property, rental properties require constant expenses. You have the mortgage payment, taxes, insurance, and maintenance (potentially higher than in your home because of the risks associated with tenants). While the rental income usually covers all these costs, you might get stuck in a financial crisis if you aren’t thorough about the expenses incurred by the rental property. In order to avoid the risk of having to pay money for your rental property instead of making money from it, make proper calculations before becoming a landlord. Know how much the property will cost you and how much it will bring to you. According to Nitin Agrawal, this will ensure that you get positive cash flow.
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