Real estate investments are often perceived as less risky than investing in stocks since it is very unlikely for you to just lose everything. 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 Jayesh Dave, MD of Jayraj Builders Vadodara.
According to Dave, 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 the top 3 risks that come with buying a 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 rent, you might get a hard time finding tenants. This problem is risky, more so if you have taken a loan from the bank to purchase the property expecting that the monthly rent will cover the mortgage payments.
According to the Jayraj Builders MD, the risk of being unable to find a good tenant can be minimized if you do your homework well before purchasing a rental property. Ensure that 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 bad tenants and getting stuck with them is 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 being accumulated. Your rental property might also get more damaged that normal use supposes.
Jayraj Builders Vadodara MD Jayesh Dave 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 you.
Higher Than Expected Expenses
The cost related to being a landlord is not limited to the purchase of the actual rental property. Rental properties, just like any other property, require constant expenses. This includes 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 the proper calculations before becoming a landlord. Know how much the property will cost you and how much it will bring to you. According to Jayesh Dave, this will ensure that you get positive cash flow.
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