It is absolutely true that the real estate investing world offers endless opportunities to make money and gain financial independence. However, before becoming a real estate investor, you should have in mind that real estate investments are not problem-free. Depending on the real estate investment strategy that you choose, becoming a real estate investor is associated with various types of challenges. For example, if you go for residential real estate investing as your preferred strategy, there is a set of obstacles that you might encounter while owning and managing a rental property. In this case, becoming a real estate investor means being a landlord, which is far from problem-free, as we all know. However, this reality should not discourage you from entering the exciting real estate investing world. You just need to be well aware of the expected challenges and know the best ways to overcome them.
#1 Challenge of Owning and Managing a Rental Property: Financing
The very first challenge of owning and managing a rental property is the property’s financing. Most real estate investors cannot afford to buy an investment property all in cash, so they have to rely on a mortgage loan from the bank, while paying a minimum of 20% down payment. This means that being a landlord is associated with making regular monthly mortgage payments to the bank. To be a successful real estate investor, you have to secure financing for your income property. Otherwise, you risk losing your rental property altogether.
How do you overcome challenge #1?
As a real estate investor, you have to conduct diligent investment property analysis before you buy an investment property to make sure that the rental income will be enough to cover the regular monthly mortgage payments as well as all other expenses of owning and managing a rental property (property taxes, maintenance, repairs, vacancy, etc.). You actually have to make sure that the rental income is enough to provide you with positive cash flow from your income property so that you make money in real estate investing.
#2 Challenge of Owning and Managing a Rental Property: Property Management
Being a landlord is related to rental property management. As a real estate investor and a landlord, you will have to make sure that your income property is always in a good shape, ready to be rented out to tenants. If you already have tenants, you should be ready for their calls at 2 in the morning because a water pipe burst or the heating system broke. Property management is an essential part of becoming a real estate investor, especially with residential real estate investing. The challenge only becomes bigger as you grow your real estate investment business and add more and more investment properties to you real estate investment portfolio.
How do you overcome challenge #2?
You have one of two options for overcoming the second challenge of owning and managing a rental property. First, you have to be very organized and manage your time efficiently to make sure that you put enough time and energy into keeping your income property in a top condition. You have to be patient but proactive. Do not wait until problems accumulate to start fixing them. Fix each problem with your rental property as soon as it shows up to prevent worsening. Second, if you already have a big real estate investment portfolio and can afford it, you could hire professional property management services. While professional property management services come at a price, the extra cost is usually totally worth is, so that you don’t have to run between your multiple investment properties and deal with leaking pipes or broken cooling systems all the time. The bigger your real estate investment portfolio, the more time and energy you need to improve your investment strategy and grow your real estate investment business even further.
#3 Challenge of Owning and Managing a Rental Property: Finding and Dealing with Tenants
Being a landlord means that you have to deal with tenants. This can be a big challenge for a real estate investor who is not particularly fond of working with people, especially people with constant complaints and endless demands. However, that’s just the nature of residential real estate investing.
How do you overcome challenge #3?
Well, one option is to just arm yourself with patience and deal with your tenants as needed. Once again, being organized is key to success here. Develop a strict procedure for choosing tenants. Make sure to visit your income property regularly (add such a clause to your rental agreement). Follow up on rent payments regularly. Familiarize yourself with the eviction process (yes, being a landlord means you might end up having to go through an eviction process if your tenants are of gross breakage of the terms of your rental agreement). Alternatively, you could use professional property management services. Such services are not only about fixing issues with your actual investment property but also about dealing with your tenants. If you can afford them, professional property management services are worth every penny. They will remove most challenges related to owning and managing a rental property and will make becoming a real estate investor a much more pleasant experience.
#4 Challenge of Owning and Managing a Rental Property: High Vacancy Rates
A major problem of owning and managing a rental property is having high vacancy rates in your investment property. An even bigger challenge than dealing with tenants is having no tenants to deal with. This means that your income property will be losing money for you as you will still have to make the regular monthly mortgage payments, pay property taxes, and maintain the rental property, while receiving zero rental income. This is exactly the opposite of what you want as a real estate investor because you will end up with negative cash flow.
How do you overcome challenge #4?
First of all, you have to conduct very careful real estate market analysis and investment property analysis to make sure that your rental property will be demanded in this location and to set the right rent. You have to do this before you even buy an investment property. However, if you realize your vacancy rates are too high once you are already owning and managing a rental property, you have to consider the rent. Maybe in your search for high rental income, you’ve asked for rent which is too high for your property type or location. Bringing down the rent might help raise your rental income as your property will face less vacancy rates. Alternatively, you could reconsider the rental strategy. Maybe you are renting your income property out through the traditional rental strategy when your property type and location are more appropriate for the Airbnb rental strategy. Changing the rental strategy might be all you need to do in order to drop your vacancy rates down.
#5 Challenge of Owning and Managing a Rental Property: Not Making Enough Money
Being a landlord is a great way to make money in real estate investing. However, sometimes owning and managing a rental property does not yield the return on investment you hoped for. Your cash flow might be too low or even negative. Your cash on cash return and cap rate might be insufficient.
How do you overcome challenge #5?
Not making enough money is a major challenge of becoming a real estate investor. You have one of two options to fix this problem. You have to either cut down on your expenses as a landlord or boost your rental income. To cut down on your expenses, consider taking advantage of tax deductions, getting rid of professional property management services, and implementing less costly repairs. To boost your rental income, reconsider the rent, the rental strategy, the state and condition of your income property, and the services which you offer to your tenants.
No one ever said that owning and managing a rental property is a problem-free process. On the contrary, becoming a real estate investor and being a landlord comes with certain challenges. Most of them, though, can be overcome relatively easily if you strategize well and plan carefully. To learn more about all aspects of becoming a real estate investor, with focus on residential real estate investing, make sure to visit Mashvisor regularly.