As adults, we may no longer be frightened at the thought of ghouls and ghosts but there are still some things that strike fear into our hearts! Unlike the fun and thrilling scare of a slasher flick or haunted house, the things that scare us today come with high stakes.
Real estate investors are no strangers to scary situations. More likely than not you will encounter some, if not all, of these terrifying turns in your real estate investing career.
But here’s the good news – they’re often avoidable. Even when they aren’t, solid investment know-how will get you out of a tough spot and back to building wealth.
Overcome These 7 Frights in Real Estate Investment
#1) Unexpected Damages
Depending on where you invest, your properties may be exposed to a variety of weather and climate-related risks. It could be the seasonal threats of tornadoes, hurricanes, flooding, or the fears of a deep freeze bursting pipes. Regardless, real estate investors can’t control the weather.
But that doesn’t mean you’re totally at its mercy.
Solution: Risk assessment, insurance, and proactive maintenance.
From the very beginning, evaluate the potential for environmental risks in your investment market. This will help you understand the reality of the risks before you. From there, you can either choose a new location or secure ample insurance coverage in the event of disaster. Then there’s proactive maintenance efforts: preventing environmental damages before they happen.
#2) Horrifying Residents
If you look up any sort of real estate investment horror stories, you’re going to find tales of nightmare residents. You might be afraid of eviction hassles, malicious damages, or unpaid rent. Know this, though: bad residents are completely avoidable.
Solution: Reliable demographics, diligent tenant screening.
Your first step is investing in the right properties. Target mid-range properties rather than cheap ones. You’ll find that they attract more reliable and financially stable residents. Your property management team plays a big role here, too – their tenant screening efforts are paramount in establishing trustworthy and reliable residents. If you do your due diligence, you will rarely have to worry about having any chilling tales to tell!
#3) Negative Cash Flow
You’re in this business to make money. Experiencing loss month after month is the opposite of your desired outcomes. How do you reverse negative cash flow and climb out of a money pit?
Solution: Reassess costs, diversify income streams, execute an exit strategy.
More likely than not, there are ways to cut down on your costs. Refinancing is an option. Diligent maintenance prevents big, costly repairs. Examine your vacancies and work to get that rate down. Adjust resident responsibilities in your lease.
As always, plan to scale your portfolio and diversify your income streams. This will reduce the impact of negative cash flow during rough patches. If worse comes to worse, have an exit strategy planned. Oftentimes, this means selling the offending property and trying something else.
#4) No Way Out
Feeling stuck with a dud property? Worried about off-loading if worse comes to worse?
Solution: Establish an exit strategy.
Before you acquire a rental property, know your exit strategy options. For most of us, the easiest solution is to sell. A single-family residential property has a far larger pool of potential buyers than a multifamily or commercial space. There are also options like cash-out refinancing, a 1031 Exchange, and investor partnerships.
#5) The Waiting Game
In the current real estate market, meeting your goals may take longer than usual. Between sky-high prices and low inventory, expanding your portfolio can seem challenging, if not impossible. The waiting game can cause investors to feel anxious.
Solution: Maximize what you have, wait for the right opportunities.
Be patient. Don’t rush to grow your portfolio with opportunities that don’t fit your vision or standards. Instead, focus on maximizing the potential of your existing portfolio. It will give you a more solid, reliable foundation moving forward!
#6) Economic Unknowns
Economic volatility is an ever-present worry for real estate investors. That’s been truer in the COVID-19 era than before. We don’t always know how the market will twist and turn, and, ultimately, impact our wealth-building strategies.
Solution: Seek stability, reliability, and inflation-proof investments.
Instead of jumping on the hottest markets of the day, focus on filling the bulk of your portfolio with properties in markets that are known for stable, steady growth. Pay attention to how your markets fared through the past several recessions. Focus more heavily on real estate over other investments as inflation becomes more concerning.
#7) Liability & Lawsuits
Any business venture opens owners up to liability they didn’t have before. Maybe you’re afraid of getting sued, messing up your taxes, or otherwise landing in legal trouble. How do you avoid it?
Solution: Wise counsel, expanding know-how, and insurance coverage.
Insurance can cover a multitude of sins, so start with investigating the right kind and amount of coverage for you and your business. Additionally, seek wise, reputable counsel in all your financial and business ventures. Your accountants should have experience dealing with real estate investment taxes. Your advisers should be experienced and ever-learning. And you, too, should prioritize a continuing education in real estate investment.
Laws and regulations change. If you want to avoid problems, know what is within your rights and what is not!
The best way to avoid frightening real estate investment circumstances?
Join REI Nation and the thousands of investors finding success in turnkey real estate investment. Our expert teams have decades of combined experience. We’re the best in the biz – just ask our family of successful investors!
