A Guide to Mitigating Risks in Long-Term Rental Investments

Long-term rental investing is a proven strategy for generating consistent returns through real estate. Along with providing investors with a steady stream of rental income, these properties have the potential for additional returns through tax benefits and appreciation. While long-term rental investments can be lucrative, there are also some risks to be aware of if you plan to get into this asset class. Understanding the risks involved and how to mitigate them will help you make the most of your real estate ventures. Continue reading for our guide on how to mitigate risks in long-term rental investments.

Understand Long-Term Rental Investment Risks

The risks that can affect the profitability of a rental investment come from a few different places. There are market risks to be aware of, which can be mitigated by careful planning and market research/comparison. There are also operational risks to consider, which will require consistent attention on the part of the rental owner or property manager. Besides this, taking time to properly handle tenant issues and vacancies is key to maximizing your return on investment.

Set the Right Rent Price

Let’s start with ensuring that you’re charging an appropriate amount for rent. Your initial thought may be to set prices as high as possible to maximize your return, but this can often just turn potential renters away from your property. Instead, you should take a look at comparable rental units in the same area as your property and try to match what’s known as the “market rent”. Additional amenities included in your rental may justify price increases, but you will also need to be careful not to over-improve your property and make upgrades that the typical renter will not find useful and not be willing to pay for.

Perform Thorough Tenant Screening

Taking the time to develop a thorough tenant screening process can save you from headaches later down the line. It is common for the tenant application process to include a background and credit check, as this helps ensure applicants will be able to pay rent reliably. You may also want to consider reaching out to their previous landlords since this can give you an idea of how they typically are as tenants.

Create a Solid Lease Agreement

It will also be important to create a comprehensive lease agreement that covers all your bases. The lease agreement is where you will set specific policies on rent, late payments, pets, subletting, and the responsibilities of both the landlord and tenants. It is also crucial that you have proper legal documentation in the case of a dispute, as this can help resolve the issue quicker and keep you from losing additional rental income.

Property Insurance

Obtaining sufficient rental property insurance can be a lifesaver in the cases where you end up needing it. Property damage is unfortunately a common part of operating rental real estate, but having good insurance helps make resolving these issues easy. Insurance can also help cover the loss of rental income due to vacancies or other unforeseen events, so consider opting for this additional coverage as well.

Regular Property Maintenance

Fortunately, one of the best ways to ensure your property remains in good shape is just by doing regular preventative maintenance. Being proactive with your maintenance schedule helps ensure things don’t break, but in the case they do, you should strive to take care of the smaller issues before they balloon into bigger, costlier ones. It may also be a good idea to have a contingency fund in place to help cover these unexpected expenses.

Understand Local Laws and Regulations

A crucial part of successfully operating a rental property is taking the time to make sure you are following the local and state laws surrounding them. This means understanding zoning laws and property codes before you invest in a rental property, and also making sure you are up to date on landlord-tenant laws in your jurisdiction. Take the time to learn and understand these laws, as it can save you from running into legal trouble as you operate your rental property.

Leverage Professional Property Management

We also want to brush upon professional property management as a solution for rental investments. Professional managers can ensure you are delivering a quality rental experience since they can take care of day-to-day operations, maintenance, and even filling vacancies. However, you will need to compare the cost of such services to your bottom line to determine if it’s worth the expense. For instance, if you own several properties in different locations, or are operating a large multifamily property, it may make more financial sense for you to hire a management firm than if you only operate a single rental unit.

RCN Capital

The easiest way to save on rental property financing is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance an investment property?