Investing in Rental Properties: Risks and Rewards

Most investors who are thinking about investing in real estate have done at least some research into the market. There are plenty of opportunities to earn money and establish wealth by investing in real estate – especially rental properties. 

Every investment comes with a set of risks and rewards, whether we’re talking about real estate investments or stocks and bonds. 

The rental market is strong and the local economy is growing. If you’d like to buy a property and rent it out, you’ll find there are many good reasons to do so. But, there are potential challenges, too. 

Let’s take a look at both the risks and rewards of investing in real estate.

Earning Money (Reward)

The major rewards to investing in real estate are pretty well-known. You’ll earn consistent and recurring rents in the short term. In the long term, you’ll increase the equity you have in your property while your residents pay down your mortgage, and the value of your investment property will increase over time.  

The longer you hold onto your investment, the more money you are likely to earn on it.

Thanks to inflation, higher sales prices, and more expensive mortgages, more people are choosing to rent right than buy. This leaves you with a large pool of qualified residents and higher rental values. 

Increasing home values and growing appreciation are also investment rewards. 

Another reward is that real estate is a tangible investment. It’s a home. If you find yourself ever needing a place to live, you have one.

Expenses and Laws (Risks)

The rental market is strong right now, and advantageous to owners, but there’s always a risk that things will shift. Rents could drop. Residents could disappear. The type of property you own could completely fall out of favor with well-qualified applicants, and no one will want to rent it.  

That’s a risk. You have to prepare yourself for vacancy costs and turnover loss. These things are expensive, and often difficult to budget for. You’ll run into maintenance issues that are unexpected, and it’s possible your residents will cause problems. 

Lots of laws will need your attention when you decide to invest in rental property, especially in California. You run the risk of making an expensive legal mistake when it comes to:

• Fair housing laws
• Security deposit laws
• Section 8 residents
• Rent control
• Just cause eviction
• Habitability standards

Make sure you know how to put together a legally compliant and enforceable lease agreement. Learn how to screen applicants lawfully and thoroughly. Stay up to date on all the laws and requirements that affect your investment property. 

Balance Risks and Rewards with Professional Property Management 

The property management partner you choose should deliver additional rewards and reduce your risk. Leveraging a qualified, experienced professional who can bring you knowledge, vendor relationships, and best practices is good for you and your investment success. 

The rewards of investing are easier to access when you have the support of professional property managers. There’s less risk that you’ll make an expensive mistake, and there’s more opportunity to increase rents, avoid vacancy, and choose better residents. 

If you’d like to further this discussion about risks and rewards and how they may impact your investment, please contact us at PURE Property Management.