There are many benefits to owning a rental property, from secondary income to property appreciation, and with so many people now looking for good quality rentals it’s a great time to invest. Nevertheless, especially for first time landlords, it can also prove to be quite challenging, and inevitably comes with some risks. Below are some of the most common risks faced by landlords and simple tips on how best to avoid them.
This one is possibly the riskiest factor and one most difficult to prepare for due to its unpredictable nature. The 2009 economic downturn affected several people and their ability to make mortgage repayments. Salaries were affected too, and some tenants were left unable to pay rent. It also reduced the amount of people looking for rentals and willing to pay premium prices. Whilst it’s impossible to be fully prepared for something like this, having more equity in a property can help; more equity means lower mortgage repayments to give more of a cushion should rent need to decrease due to a poor economy.
Maintenance and Damages
Every landlord should expect to carry out annual maintenance on any property and it’s typical to be prepared to deal with minor cosmetic damage and some breakages. However, even small repairs can add up over time if not properly budgeted for, not to mention larger maintenance issues that can spring up at any time. The best protection for the truly unexpected is comprehensive Hamilton Fraser landlord insurance, to cover the potentially devastating effects of surprise incidents. Deal with small incidents fast to avoid them transforming into bigger problems.
Choosing the Wrong Property
Not every property will appeal to renters or may end up appealing to a group of renters you weren’t initially targeting. Having a target renter in mind when purchasing a property is crucial to ensuring the property appeals to them. Undergraduate students aren’t likely to want brand new studio apartments and commuters won’t be seduced by a great property without reliable transport risks. An undesirable property can lead to extended vacancy and mean a loss of income for you. Minimise this by imagining your ideal tenant and the kind of property that would appeal to them most, pairing this with some market research to identify trends associated with your desired tenant.
Trouble with Tenants
This is possibly every landlord’s worst nightmare but sometimes the tenants selected are just not who they present on paper; this can end very badly with damage to property or missed rent payments. If you’re not renting your property through an agency, who would take care of paperwork for you? Create a list of documents you want to see from the tenants before moving in. Don’t be afraid to ask what you think is necessary and consider it a red flag if a potential tenant cannot provide it without a simple explanation. It can be tempting to rent out a property to the first interested renter, but it can end up being an expensive mistake, so spend some time choosing the right people even if it costs you a little more.
Whilst property investment can be a secure and reliable way of generating income, it’s important to approach this just like any business venture – by weighing up all the risks and rewards. Some risks are truly beyond your control (though good insurance can still help mitigate this) and the rest you can prepare and budget for by spending some time considering the reality of being a landlord and the property market.