Please welcome Dominica Applegate who will talk about the challenges of real estate investing. Dominica is a contributing writer at Inzopa.com. Inzopa is a private network of home buyers, owners, mortgage lenders and real estate agents. Let me know if you would like to guest post on RFI.
With the surge in foreclosures over the past five years, there has been a significant increase in real estate investing. Investors have taken advantage of the down market in order to snatch up rental properties for ultra-low prices. Real estate investing is a great way to earn residual income, but before you run off to the bank to get approved for a loan, be sure you are ready for the challenges that come along with real estate investing.
Getting foreclosures ready to rent
Not all foreclosures are in optimal shape. In fact, some are really run down and have significant damage. If you want to invest in real estate, you must be ready to put some money and time into getting your rental tenant ready. You might have to hire a painter, a carpenter, plumber, landscaper, or electrician to get the house suitable for someone to live in it. Of course, it will be much cheaper if you can do some of that labor yourself. If you are prepared financially to invest in getting the foreclosure ready, then you are ready to begin your investment career.
Getting suitable tenants
If you ask real estate investors what their greatest headache is, they will probably tell you that tenants give them more headaches than you can imagine. Finding tenants that pay on time is not always an easy task, but there are ways to increase the chance that your tenants will be on time and respect the property. If you can afford to hire a property manager, this is your best bet. You might have to pay them around 10% of the monthly rental rate, but that 10% covers a lot and will save you many headaches. They can advertise the rental, meet prospective tenants to show the home, have them fill out the rental application, perform the credit and background checks, and make the final decision on who gets the house. Additionally, the property manager handles collecting the rent, sending out late notices, and filing eviction if necessary. You just sit back and collect a check each month. If you cannot afford to pay a property manager, be prepared to handle all of those tasks yourself.
Tenants destroying property
Even if you have the best of the best property manager, sometimes a tenant that seems respectable will not treat your rental home with respect. Plenty of real estate investors walk into a home that has been trashed after a tenant has left. They may leave a pile of garbage, the carpets may have stains all over them, the walls could have holes, there can be water damage, cockroach infestation, and more. Are you prepared to handle such after a tenant leaves? This is one reason to always require a full month’s security deposit and a pet deposit as well. Dogs and cats can tear a house up in no time if the owners are not responsible pet owners.
Tenants not paying
Are you prepared for when your tenant tells you that his wife left him and he can’t pay rent anymore? Even if you file eviction, he can stay in that property for weeks until the court hearing. You could potentially lose one to two months’ rent money if this happens. Be sure that you are prepared financially to cover the mortgage in the case that your tenant skips town or camps out in your house until the eviction process is complete.
There are certainly perks to owing real estate. Cash flow and a tenant purchasing your home are two wonderful benefits of investing in real estate, but be sure that you are ready for the challenges of investing as well. Over time you will get used to these challenges, and things will not be such a struggle as you pay off mortgages and learn what to do in each situation. Real estate investing is certainly a great way to increase your yearly income and set yourself up for a bright financial future.
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DC @ Young Adult Money says
I rent out my basement and it comes with pros and cons. So far our tenants have always paid on time, but it can be stressful finding a tenant when one is moving out. With that being said, if you find the right one and you have them for a year+ with no issues, the income is really nice.
Jack @ Enwealthen says
Finding a great tenant can be difficult, depending on the area you’re renting in.
I’ve been extremely lucky so far with past renters, but I’ve always been renting a room, not an entire unit. We’re working towards our first rental unit, but will hopefully be able to afford using a property manager. Doing it all yourself definitely saves you money, but not only are there the legal and maintenance hassles, it just doesn’t scale as you’re only one person and only have one life to live.
Structuring your deals so that you can always afford the extra 10% cost of professional property management means you can focus on making great deals and more money rather than having to spend all your time dealing with tenants.
Michael | The Student Loan Sherpa says
I don’t think I would do well as a landlord. I would take it personally if a tenant destroyed my property or didn’t pay rent.
Not really. There are too many things that would hinder my success.
Daisy @ Prairie Eco Thrifter says
Our property is partially rental property (basement) and we live upstairs. Luckily we have a family member (my brother) in the suite so that makes it much easier and these challenges are not really concerns, for now. I do really like the extra money!
prabhat singh says
It is a dream I am working on right now. I don’t know how long it will take me but I am positive that one day, I will be able to fulfill that dream that is why I like reading posts like this, anything that will teach me to do it wisely when the time comes.
Lisa E. @ Lisa Vs. The Loans says
I really would love to invest in real estate one day, but I’m going to wait until I have enough money to cover these potential concerns.
James@Finance Education says
Investment in real estate business is very fruitful as long term investment. Different people have different way of pulling out profit from their own property. Some interested for getting bank loan. And they have also solid planning for investing that much amount. Simultaneously they also give the same property on rent. Dual aspect of income they get by utilizing the same one. This way is little bit risky but today everything have to do for earning profit. 🙂
Gerald Harris says
1 of the biggest challenges i have had in the past is dealing with Foreclosures. Its a tricky process. First you have to deal with deferred maintenance, but that has not been the biggest issue. For me it has been the fact that you have to deal with people who are squatting and the eviction process. Time is money. The sooner you can get that property vacant and rehabbed the better. Great Article!
valuable information about challenges in real restate filed are described thank you so much for your help
Great Article with growing inventory and a possible downturn what are some good investment strategies in a downturn market
Lutech Engineering says
The biggest challenge in real estate is keeping up to date with technology and investment is really beneficial and great. Thanks for this lovely post! Will keep visiting in future to keep myself updated with latest things..!!!
Zanetti Mottega says
A very informative article about real estate investment! People who wanted to invest in real estate in Italy must learn the basics in order to understand that it is possible to get high revenue from this.
Roy raymond says
A really great article that talks about the pros and challenges of investing in a real estate property. I read many articles that only talks about how good real estate investing is without even looking at the cons. Really helpful for as i am soon looking to invest in a suitable property.
Jonathon Kelso says
Hey Pauline, Very insightful and well-written article! The information you have provided about the challenge of real estate investing is really impressive and very helpful to me. Thanks for sharing this useful article and I really appreciate your efforts on this post. Keep Posting Similar articles.
Ariel Manoban says
One of the smartest thing that anyone could do these days is by investing in the real estate industry. The pros and cons that you have pointed out really helped, not just me but other people, to understand what real estate investing really is. Thank you for sharing this very informative content!
1 of the greatest difficulties I have had in the past is managing Foreclosures. It’s a dubious procedure. First, you need to manage conceded upkeep, however that has not been the greatest issue. For me, it has been the way that you need to manage individuals who are hunching down and the removal procedure. Time is cash. The sooner you can get that property empty and rehabbed the better. Extraordinary Article!
Valuable information about investing in real estate. I would surely like to invest in real estate, in the mean while, working on savings 😉 Thanks for sharing this information.
Jack Hayes says
Really helpful article and I got 2 big ideas regarding to real estate investment. I was planning to invest in Dubai and this could be the best read for me before invest there. Thanks for sharing
Emery Ocampo says
The real estate industry is indeed not a walk in the park. This is why it entails a lot of researching, planning, and effort in order for you to be successful in this area. 🙂 Thank you so much for sharing this!
Capital smart city says
Investing in real estate is a risk but if you got lucky and understanding a little bit of property then you can earn allot of money in a short time.
Good Time Builders says
So much knowledgable information i got from this blog thanks you so much. I would share this information which the people who actually need this.
aNil Mani says
Keep your expectations reasonable, try to make a large down payment
Each trade has its own risks, and if you’re in an investment, you have to be a risk-taker. The truth is a real state is a long-term venture.
EIPL Group says
Being an investor I know the pain when we invest and we don’t get pain. I really appreciate the work you have done to us. I learned a lot of things from this article.