The Unexpected Risks Of Operating A Rental Property (4 Video Links)

Property has almost always been considered a relatively sound investment for individuals, and the yield from short-term rentals has been increasing considerably as of late. There is an opportunity to take advantage of, but there is also a risk that you have to be willing to deal with, as well. Some of these risks can see you making less than you should, but some might even have some legal consequences.

 

Consult with an investment advisor, CPA, and an attorney regarding these issues.

 

Here, we’re going to look at some of the risks that you might not anticipate when you start running a short-term rental property, as well as some of the steps that you can take to ensure that you’re managing them effectively.

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The high vacancy rate

This is a risk that can affect properties of all types and in any location. Even vacation rental hotspots will have periods of dealing with higher vacancy rates. One of the best ways to make sure that you’re able to combat it is to understand your high-demand seasons and to adjust your pricing when demand starts to dip. Otherwise, working with property management professionals may be able to help you get the support in advertising and outreach that can allow you to reach more potential guests and bring in more business.

 

Considering your neighbors

The more considerate individual is not likely to be happy with the idea of affecting their neighbors’ quality of life too much. Vetting your tenants can help you stop them from being too much trouble for either your property or for your guests. There are additional steps you can take such as to avoid AirBnB noise complaints with noise-blocking technology that makes your tenants a little easier to manage. Get an idea of not just laws you need to abide but any community or housing association policies that you might have to follow depending on where your property is.

 

Steep competition

 

Choosing a good location isn’t just about choosing rentals in a location that people like to spend their time. You also need to consider how much room there is in the market there. With the advent of things like AirBnB, rentals are opening at a much faster rate in cities across the globe.

 

If it’s too late for you to choose a different property, you need to consider other ways to get good word of mouth and guest ratings, such as gift baskets, bathroom luxuries, and high-quality materials for anything that is designed for guests use in the home.

 

Losing track of cash flow

 

Even if your property remains profitable for the entire year, there are likely to be periods of that year where you are spending more than you are making. As such, you can easily end up finding that you get into a negative cash flow overall because you haven’t accounted for and prepared for those higher costs.

 

To that end, make sure that you are using tools like rental accounting software to get more accurate calculations of the expenses of your rental property throughout the year and take cash from your high-profit periods to keep for when you need that cash flow injection.

 

Cancellations galore

 

Depending on where you can rent, you might be always open to the risk of a booking being closed. Some of the rental apps out there allow for guests to cancel their booking at very short notice and with no additional discussion, so long as they can claim extenuating circumstances.

 

As such, if you’re planning to set up a rental, you have to make sure that you know the cancellations policies of the platforms that you are renting through. There’s a good chance that you might have to eat the occasional cancellation if you want access to a larger base of potential customers.

 

Getting back out

 

If you’re planning on using a vacation rental as an eventual retirement home, then you might not need to worry about this too much. However, property is not a liquid asset, meaning it can be difficult to get out and to get your money back.

 

If you are thinking of selling, you need to get the wheels rolling in advance with the help of an agent. Otherwise, if you need the cash from a sale quick, your options may be limited to companies that buy properties for cash, but at a reduced price.

Of course, another option could be selling at auction. This can be a quick method to get out of the market if you want and need to, and although you will usually sell for less than the market price, if you can make your property look great and keep it in good condition, you might even make a profit. Check out Concierge Auctions reviews to see how it’s done.

Any investment you take is always going to have some degree of risk that comes with it. However, with the tips above, you can be aware of those risks and be making your effort to prevent them from getting in the way of running a successful rental property.

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Good luck!

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

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/