The Struggles Of Earning Money From Rental Properties
For decades, real estate has been a useful investment option, particularly as a way to diversify a portfolio that contains stock and bond investments. One way to produce a return on real estate is to generate rental income, and this form of income can improve your personal finance situation.
If you can develop a regular source of income, you can use the funds to maintain the property, make principal and interest payments on a property loan, and reinvest any excess cash.
Keep in mind, however that many property owners lose money on rental properties. There are risks related to the property location, maintenance costs, and renters who are not reliable tenants. Use these tips to understand the biggest struggles of earning money from rental properties and how to avoid them.
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Are Your Tenants Reliable?
The biggest issue you face is renting to tenants that don’t pay rent on time, or stop paying completely. Your first line of defense is to have a formal rental agreement reviewed by an attorney, and to have each tenant sign and date the agreement.
If a tenant does not pay, that person is violating a contractual requirement- but it can be challenging to demand the money from them if you’re managing the property by yourself. To avoid this, you need to seek out residential property management services, which will enable others to take control of rent payments. This means you have a team working on your property and ensuring people pay when they need to pay.
Finding Tenants
It’s essential for a rental property owner to find tenants whenever the property is vacant, so that the property can produce rental income consistently. Without tenants, you’re wasting an investment, and you need to think about what to do.
The key here is to market your property effectively. Get it on various websites, including lots of beautiful photos, and list all the amenities a tenant will receive.
The rent price is almost important; the price should match up with other prices in the area for a similar property to yours. If your rental price is too high, tenants will rent similar properties that are less expensive, and you won’t generate sufficient rental income.
Are Tenants Staying?
Lastly, a rental property can struggle if it doesn’t manage to hold onto tenants for a long time. Let’s say you finally find someone that rents your property, but they leave after six months. You’re back to square one without any tenants.
Obviously, if someone signs a short-term lease, then you should continue advertising the property, but make it clear it’s only available after their lease ends. This helps you find interested parties before they leave, meaning you can make a seamless transition when they go. But, if they leave because they’re unhappy with your property, then you need to work on being a better landlord and providing better services.
Essentially, all your main problems are tenant-related! If you can find tenants, ensure that they pay rent on time, and can keep them for a long time, then you end up producing a consistent stream of rental income.
This post is for educational purposes only.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/
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Image: Karol M Houses all in a row (CC By 2.0)