How to Mitigate Risk with a Rental Property Investment

An investment in a rental property is an excellent way to build long-term wealth and make money with real estate. Rental properties provide investors with steady income and can also grow in value over time with appreciation, netting you an even greater return. Keeping your rental property running smoothly isn’t always the easiest task though, and there are all sorts of issues that can pop up which may affect your profitability. The best way to keep your investment profitable is to make sure you’re managing the risks associated with the investment properly. Continue reading as we cover some of the most common risks associated with rental properties and how you can make an effort to stay on top of them.

Avoid long periods of vacancy

Simply put, you can’t make a return on your rental property if nobody is actually renting it. Taking care of vacancies quickly is crucial since every month the property stays vacant, the more you pay in holding costs like mortgages & utilities. The key to dealing with vacancies is making sure you’re charging the appropriate amount for rent. People will go out of their way to rent a property for a good price, and they’ll be more likely to stay there for longer too. To ensure you’ve set rent at the right amount, take a look at comparable properties in your area to get a better idea of the market rate.

Take care when finding tenants

Although you do want to fill any vacancies quickly, you also don’t want to lease your property to a tenant that ends up being a problem. A bad tenant can cost you thousands in missed rental payments, and having to go through a drawn out eviction process will cost you even more. That’s why it’s vital to conduct thorough tenant screening when you’re trying to fill vacancies. At the bare minimum you should conduct a simple credit and background check. Follow this up by asking for proof of income and rental history. Taking time to speak with the tenant’s previous landlord(s) can give you a much better idea of how they are as a tenant. Finally, you should consider purchasing rental guarantee insurance, which will provide you with financial protection if a tenant ever fails to make payments.

Cover all your bases in the lease agreement

You can also protect yourself by establishing clear policies in your lease agreement, and making them known to your tenants. The most important of these will be establishing how you deal with late or missed rental payments. For example, some landlords may choose to charge a late fee to deter their tenants from missing payments, or a grace period before these fees go into effect.

When it comes to renewing a lease, you should have a set period for when the tenant will need to decide if they’re going to renew the agreement. This can help reduce vacancies that would have otherwise caught you off guard, or at least reduce the time between tenants if your current tenant decides not to renew.

Besides rental term and amount, the agreement is also where you’ll make stipulations on things like security deposits, pets, occupancy limits, and subletting. Take some time to write up an extensive agreement, since this will help protect you in the case of any issues with tenants.

Stay on top of maintenance and repairs

Managing risk with your rental property doesn’t end after screening tenants and filling vacancies; you should also strive to keep your property, and also your relationship with your tenants, in good shape. Be sure to handle any repair requests that may come through right away before they balloon into major issues that will end up costing you more.

You will also want to conduct regular inspections of the property, with your tenants consent. The extra care you show to the property will let your tenants know they’re in good hands, and they’ll be more likely to stay at your property longer, which means less dealing with vacancies and screening new tenants.

RCN Capital

The easiest way to save on a rental property investment 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 a long-term rental property?Connect with us today.