Warning! The Risks Of Owning Rental Property

Spencer Sutton here with gkhouses and today I want to talk to you about Warning!/ the risk of owning rental property.

Yep, that’s right. Whether you’re a home owner who is just renting your house maybe that you’ve lived in for a while, you have to move out of state, or you’re an investor who’s actively seeking out multiple properties to rent out, regardless you’re in business.

And, in the investment world, there are always going to be risks and so I want to talk to you about some of the top risks that are involved in owning a rental property that you should be aware of.

The First Risk/ Warning! The Risks Of Owning Rental Property

The first risk is that your tenant stops paying rent, and this is a common fear among home owners.

We’ve done several surveys over the past few years, and we ask this question, “What are your biggest fears when renting out your home?”

And, always the top two are the tenant won’t pay rent and fear that the tenant will tear up the house.

So, this first risk is just that the tenant stops paying. Now, this may not be a big deal to you, but for some people, it’s going to be a big deal if they have a mortgage so that they’re counting on that rent to pay.

And so a month, two months of non-pay or slow pay can actually have a big effect on your cash flow.

So that’s the first risk. And depending on where you live, you’re going to have different eviction processes if it gets that far.

Hopefully, you can get the tenant called up and get them back on track, because ultimately at the end of the day, there’s all kinds of life circumstances that can happen.

No matter if you screen perfectly and you have a great tenant profile like this tenant moved in and passed all of our screening criteria, if they lose a job or if some type of personal crisis happens and they can’t pay rent, then that’s going to hurt.

So, the number one risk is not paying rent.

The second Risk/ Warning! The Risks Of Owning Rental Property

The second one I’ve already mentioned is that the tenant tears up the house, so they don’t treat the house like you would treat the house.

Hopefully, if you’re renting your house and you set aside a security deposit, which is typically equal to one-month rent, now that may help you for a certain portion of any kind of damages.

But if a tenant really tears up the house, then you’re going to have to come out of pocket a lot more to get that house ready to re-rent or whether you want to sell it regardless.

So, a big risk is that you maybe don’t do a great job of screening the tenant and you get someone who just has not been a good tenant other places in the past and then tear up your property.

And, those are two of the big risks involved with owning rental property.

The Third Risk/ Warning! The Risks Of Owning Rental Property

 

The third risk is just a law suit. This is ones that I’ve had to deal with over, I’d say, probably two to three years ago.

I had a tenant at one of our houses, and he had a party. He had a gentleman that was hanging out on the front porch, and the gentleman was intoxicated, and he fell off of the front porch on the ground.

He sued us, sued me as the owner of the house, also sued gkhouses as the property manager, and so that thing drug out for quite some time.

So that most definitely is a risk that you run hen you own rental properties that you could get sued.

You’re allowing other people to live in your home. Now, you’ll have insurance to help fight this and cover this but just know that it is a risk and some things can go wrong when you start to reach your house and you open yourself up to potential law suits.

The fourth Risk/ Warning! The Risks Of Owning Rental Property

The next risk is that you’re unfamiliar with certain landlord-tenant law.

And, if you’re unfamiliar with landlord-tenant law, you can do something or say something that is illegal, actually, and can get you in a lot of trouble.

So, we’ve seen this throughout the years. Here in Birmingham, Alabama, I remember going to listen to one of these investors.

He had a lot of houses. He probably had 200 rental houses in  area of town and he talked about…and, this investor, mainly he talked about all the different ways that he would collect rent if the tenant were falling behind.

He would go and do things like taking the front door off of the house.

He would do things like climbing on top of the roof and putting things into the plumbing ventilation.

So, all kinds of things to…now, these are gross, you know, actions that he took, and I wouldn’t think that anybody would take that, but unless you know the law, then you’re going to open yourself up to get in trouble.

What he was doing was most definitely not right, but even if you just messed up a little bit, you could get in trouble.

So, that’s definitely a risk.

The fifth Risk/ Warning! The Risks Of Owning Rental Property

 

And then the last risk I would say just when you own investment properties, there’s always something to think about, and that’s just that real estate is not all that liquid, so you can’t just cash it out like you can stocks or bonds.

It’s definitely West Lakewood Asset. And if your tenant is still living there, then you’re going to have to find a specific person that wants to own rental properties, so you’re looking for an investor.

That investor more than likely is not going to pay market rate, and so it’s not merely as liquid.

The real state market is doing good, and you’re going to have a better chance of selling that house.

More likely when the tenant moves out, you’ll fix up the house and then you can sell it, but it’s not as liquid as other investment types.

So, those are the five things that I would say you need to look out for.

Those are the risks involved in owning rental property. If you have any questions at all, don’t hesitate to reach out.

You can find us at gkhouses.com. You can also email me directly at ssutton@gkhouses.com.

I’m happy to help and best of luck to you.