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Investment properties have great potential for passive income once you get them going. As long as you buy property you can afford and are able to keep it rented out for a decent price, you should start to earn income quickly. However, not all investments end up being profitable. Between hidden costs of investing in real estate, paying too much for the property, and being an inexperienced landlord, a single investment could become a major loss of up to 100% or more.
Putting Off Small Repairs
Even small repairs take time and money to complete. It’s understandable if you don’t want to fix broken window screens or replace broken door stops, but there are consequences to not making repairs. Windows left open without screens invite dirt and bugs inside. A door without a stopper will cause the doorknob to produce dents and holes in the adjacent drywall.
When a landlord takes too long to make a repair, some tenants will make the repair themselves. Others will continue with normal life and cause further damage. It seems like a blessing when you have a tenant who doesn’t mind fixing things, but tenants don’t always make proper repairs. Sloppy work will cost you more money when your tenant moves out.
Putting off a small fix like masonry repairs also gives your tenant the impression they aren’t a priority. This can lead to other problems like late rent, and failure to report future repair needs.
Buying The Wrong Rental Properties
The fastest way to lose income is to buy the wrong rental properties and not know your costs are too high. You’ll lose the most money when you don’t know what you’re missing because you won’t know how much income you should be generating.
There are several ways the wrong property can drain your income. For example, Green Residential warns people looking for investment property in Houston to be careful not to purchase properties banks consider too risky to finance like student or defense housing and outer coastal properties. These properties can end up being money pits. Student and defense housing units are difficult to keep occupied, and coastal properties are at high risk for damage and total destruction.
If you purchase a property with high tenant turnover, your income will be inconsistent and you can’t accurately predict how long it will take for you to repay your loan.
Not Liking Being A Landlord
If you don’t like being a landlord, you’re losing money already. If you don’t want to spend your time managing tenant problems, repairs, and chasing rent, you’re more likely to become an absentee landlord. That’s not good for your income.
If you don’t like being a landlord, but want to continue renting out your properties, a reputable property management company is the solution. They’ll handle everything for you including tenant screening, credit checks, maintenance, and even evictions if necessary. Just be sure not to hire an individual to do the job. It really takes a whole team to find good tenants and take care of them properly.
Too Many Extra Fees
Did you buy a property in a flood zone? If so, you have to buy flood insurance. Is your property also controlled by a homeowners’ association? There’s another fee. What about property taxes? Is there a big yard to maintain that you can’t make the tenant responsible for? Extra fees will eat up your income, tank your profits, and put you back at square one.
Holding Out For A Specific Type Of Tenant
Although it’s understandable, holding out for a specific type of tenant is mostly illegal. The Fair Housing Act doesn’t allow you to deny tenants based on race, gender, nationality, religion, or any other protected class. The only exception is if that tenant is going to be living in the same rental unit as you, the landlord.
By denying applications in hopes of finding someone who shares your religion or has some other specific trait, you’re losing money and risking a lawsuit.
Always Know Your Income And Debt
Knowing exactly how much money you owe and how much income you’re generating is the only way to know if you’re turning a profit. You can’t fix what you don’t know is broken. Give yourself a reality check. If your expenses (including mortgage payments) are higher than your income, it’s time to create a new plan.
