It’s easy to see why so many people regard rental property investment as a lucrative venture. After all, purchasing a well-maintained property in an area that people are flocking to can be a great way to provide yourself with a consistent source of passive income. Still, it’s important for fledgling investors to understand that not all rentals will generate healthy returns. As you’ll find, there are a variety of reasons for which rental property investments prove unprofitable.
The Property is in an Unprofitable Location
If you’re looking to generate the highest possible profit from a rental property, you should limit your scope to properties that are located in areas with abundant demand for housing. Investing in a property in an area with a shrinking population, struggling local economy or low housing demand will make it very difficult for you to generate your desired ROI.
So, before making an offer on a rental property, take care to research the area in which it’s located. Familiarizing yourself with local property values, rent prices and housing demand will provide you with a good idea of how much you can expect to make from this investment. Should you require assistance in distinguishing profitable areas from unprofitable ones, reach out to a knowledgeable real estate investment company. The right company will be able to address any real estate-related query you may have, such as “What is a cap rate?”
Proper Attention Isn’t Being Paid to Maintenance
Unsurprisingly, few renters are keen on residing in properties that are poorly maintained. In addition to staying on top of groundskeeping and necessary renovations, it’s imperative that you regard every maintenance request a tenant sends your way with due importance. The longer certain maintenance issues are allowed to linger, the harder fixing them will ultimately prove – and the more damage they stand to cause to your property. Furthermore, treating maintenance requests like afterthoughts is practically guaranteed to put you in a bad place with your tenants and reduce your renter retention numbers.
If you’re managing a small single-family rental, you may be able to handle the bulk of the maintenance yourself – especially if you’re well-versed in various types of home repairs. However, when it comes to large multi-family properties, there may be no way around hiring full-time maintenance personnel. For example, an apartment complex with hundreds of units is going to require onsite maintenance every day of the week. So, regardless of how large – or small – a rental property happens to be, it behooves you to regard maintenance as a top priority.
The Property is Poorly Managed
As is the case with lackluster maintenance, poor management can have an adverse impact on a rental property’s profitability. This is why it’s so important for property owners to make themselves available to tenants and address questions and complaints in a timely, professional manner. So, if you don’t feel as up to the task of managing a rental property you’ve invested in, enlist the services of a professional property manager.
Per the title, this individual will be responsible for every facet of managing your rental property. From interacting with tenants to screening prospective renters to delegating maintenance responsibilities, the property manager will have a considerable number of tasks to attend to. A dedicated property manager can be a boon to property owners with multiple rentals or people for whom property ownership is essentially a side gig. Maintaining good relationships with renters is conducive to healthy renter retention rates. So, if you lack the time or energy to field calls from tenants or interact with them directly, it is essential that you hire a property manager to act as your proxy.
Believing that every rental property you have the opportunity to invest in will prove profitable is pure folly. While being able to count on guaranteed returns certainly sounds nice, such expectations are unrealistic. Since purchasing your first rental property with this type of mindset is unlikely to do any favors for your long-term financial goals, take care to conduct proper research and ask the right questions in advance of making such an important investment. As evidenced by the examples discussed above, there are a litany of reasons for which a rental property may fail to generate the desired returns.