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5 Risks of Investing in a Single Family Rental and How to Avoid Them

5 Risks of Investing in a Single Family Rental and How to Avoid Them

So you're considering buying a rental property. It's not a bad idea since Americans are renting at the highest rate seen in the past 50 years. Basically, there has never been more renters since 1965.

Single family rentals are on the rise lately, but are they too good to be true? Here are 5 risks you might encounter and how to go about them all in one place!

Don't worry, we get it. It can be nerve-wracking to dump your hard earned cash into such a big investment. We're here to help ease your nerves.

Risk #1: Being Unprepared

Owning a single family rental sounds like the easy and stress-free way to grow your wealth: buy a house, find renters, forget about it. But, it is a serious investment that should not be taken lightly. 

Before you buy, you need to be aware of everything that comes with being a landlord.

How to avoid it: Before you buy, do some research. Some experts recommend creating an LLC for your rental property. This will limit your personal liability and even offer some tax benefits. 

Ask other landlords what problems they have dealt with. Get a good idea of what you are jumping into before you make this type of investment. 

Risk #2: Buying Bad Properties

The idea of rental properties is to buy homes that will make you money. So naturally, you want to buy cheaper homes. The problems arise when the home has serious improvements that need to be made. These improvements will cut into your profits. 

Nothing is more frustrating than buying a home, getting tenants, then realizing the roof needs to replaced.

How to avoid it: Hire an inspector to look over the property before any contracts are signed. Find an inspector who will be thorough and honest. And once you find one you can trust, hire them to inspect all your potential investments.

Risk #3: Spending Too Much on Repairs

It's common for rental homes to need repairs. They are often homes that are in foreclosure or homes that need to be sold quickly. Remember, this home's purpose is to make you money. Don't go overboard when making.

How to avoid it: Keep in mind that you are not living in this home. It is a rental property. Tenants who are renting are often not as picky as home buyers. Fix what you need to make the house presentable and clean. You may need to clean the carpets and paint a few rooms. Don't worry about upgrading the countertops to granite. 

Risk #4: Finding Tenants

owning a rental property does not automatically guarantee that you will find a tenant. If you can't find a tenant, you as the owner will need to take cover the mortgage payments, insurance, and property taxes. This can be a huge financial stress if you aren't prepared for it. 

How to avoid it: Do your homework before you purchase an investment property. Make sure the home is in a location where rental homes are successful. Since single-family rentals are popular with families, make sure the area is family friendly, such as good schools, safe communities, and parks close by. These will attract the kind of tenants you want.

Once you attract some interest, make sure you go through a vetting process to find the best tenants possible. Do a background check and ask some questions. Trust us, you'll be glad you did. 

Risk #5: Market Failure

Historically, the real estate market has been a good place to invest your money. But, dips in the market can and will happen. There may be periods of time when your rental property isn't worth as much as you had hoped, or rents rates are lower than the mortgage payment.

How to avoid it: Don't panic. Yes, the market may fluctuate, but that doesn't mean you should sell all your properties immediately. If you can wait out a few rough years, chances are the market will straighten out and you'll be making money again.

Is a Single Family Rental for You?

If you still hesitant about purchasing a single family rental, don't hesitate to contact us. We are experts in the industry and can walk you through all the pros and cons of getting in the rental business. 

It can be an intimidating step to make, but one that will make a big difference for your longterm wealth. 


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