Investing in rental properties is an excellent way to generate long-term income, but it comes with many risks that extend beyond the obvious. Yes, there is the potential for property damage and unpaid rent, however, there are several risks that most people don’t think about before getting started. Since nobody told me beforehand, I had to learn some of these by making my own mistakes.
Throughout several years of owning properties, I’ve found that owning a rental property can also teach some excellent life and business lessons, on top of learning about risks the hard way.
Here are the most important lessons I’ve learned.
1. Check the property for asbestos.
Knowing if your rental properties have asbestos in the ceiling, floor tiles, or anywhere else is crucial. Just owning a house that contains asbestos somewhere increases your risk as an investor.
Asbestos exposure is serious and can cause a rare, aggressive cancer called mesothelioma. Mesothelioma symptoms mimic pneumonia and since they don’t show up until 20-50 years after exposure to asbestos, it can come as a major surprise.
If any of your tenants are exposed to asbestos now, you could get hit with a lawsuit later and it will seem to come out of nowhere. You won’t be ready for it, and you’ll feel sideswiped.
Although landlords are not legally required to disclose the presence of asbestos to tenants, they need to provide habitable premises. Most of the time, it’s safe to leave asbestos alone and undisturbed, but it’s best to have a professional properly remove it.
2. Don’t waste money on certain upgrades.
As a new investor, it seems like making a bunch of upgrades will attract more applicants and you’ll rent a property faster. That’s true of some renovations, but not all. For example, it makes sense to spend several thousand dollars to remodel a bathroom that has an inconvenient layout that makes taking a shower or using the toilet awkward. However, it doesn’t make sense to replace the kitchen cabinets – at least not for your tenants.
Sure, tenants would probably love having solid oak cabinets with fancy knobs and handles, but that’s not a deal breaker like the bathroom layout. If you own a luxury home, then upgrading the cabinets might be wise. Otherwise, consider refinishing the cabinets instead and only replace them if they’re falling apart or otherwise non-functional.
Invest your money only in renovations that are necessary, like things that impact a tenant’s ability to live in and enjoy the property. Everything should look nice, but you don’t have to turn it into a 5-star hotel.
3. Tenants don’t know when to request repairs.
Not knowing about needed repairs is one of the biggest issues every landlord faces. Some tenants call their landlord about every tiny thing, and while this can seem annoying, it’s helpful because you won’t miss anything. Most tenants, on the other hand, don’t report issues to their landlord for various reasons.
Some tenants are traumatized from former landlords who never made any repairs despite multiple requests, and others are used to absentee landlords who don’t even answer the phone. Often, a tenant will put off reporting the issue until they forget. When this happens with serious issues, like a leaky roof and/or water damage, it can cost you far more in repairs when the damage has been prolonged. Untreated water damage can also decrease the value of your home and pose health risks to your tenants.
When signing a lease, always give your tenants specific examples of the kind of issues you want them to report and ensure they know you won’t brush them off. You need to make your tenants feel comfortable reporting issues even if they caused the problem. This is an art and requires strong communication, empathy, and building rapport.
Landlords manage tenants and properties.
Renting properties is a two-part game: you’re managing tenants and properties, which means there’s plenty of room for error. Real estate is a lucrative opportunity, but if you want to protect your profits long-term you need to invest in ongoing training to ensure that you’re equipped to handle both known and unknown risks.
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This content is made possible by Larry Alton.
Photo credit: Shutterstock
