We recently asked what topics you wanted to hear about, and avoiding risks in real estate was one of the most common answers we received. So on today’s show, I’m here to talk about some of the top investing risks and how you can avoid (or at least mitigate them).
This episode of Investing in Real Estate, I’m sharing eight of the top risks in real estate investing and what you can do to avoid them. We’re going to talk about making your numbers work, putting safeguards in place for tenant problems, and so much more!
More About This Show
- Vacancies. Most people know that vacancies are the number one risk when it comes to real estate investing. Now, some short vacancies can be expected, but what you don’t want to have is an extended vacancy that lasts for months and months. There are two things that go into avoiding vacancies. One – investing in the right market where there is job growth and diversity and Two – working with a property management team that is skilled in marketing properties and finding tenants.
- Negative cash flow. The whole point of investing in real estate is to make money, so you do not want to get yourself into a deal that has cash flow problems. The best way to avoid this problem is to run your numbers – and then run them again! Make sure you’re accounting for any possible expenses (including financing) in your formula. I’ve got a comprehensive video on IRR that we’ll link for you in the resources section.
- Investing in a bad market. Investing in the wrong market can bring you a whole host of problems. I could talk about this one forever, but instead I’ll direct you to a longer video I did that has my checklist of things I look for in a rental market. You can find it in the resources section.
Lawsuits. Garrett Sutton says that a real estate investor shouldn’t worry about IF they’ll get sued, but when. I’m not here to give you legal advice, but I can tell you how important it is to set up the right liability structure for you & your investments. Seek out legal advice from an attorney who understands real estate investing.
Bad tenants. Trust me when I say that getting a bad tenant is possibly one of the most frustrating things that can happen to you as a real estate investor. It’s horrible when you have someone living in your investment who doesn’t have the respect to take care of the place – or one who doesn’t want to pay rent. While there’s no way to make sure you never have a bad tenant, there are a few ways to mitigate the risk. First, you want to make sure that the property management company you’re working with has an extensive and thorough tenant screening process. Additionally, another layer of protection involves investing in landlord friendly states. Should you need to terminate a tenant, you should have the right to do so.
Costly repairs. I’ve seen this one happen too often – an investor buys a house and all of the sudden it becomes a money pit! Let me tell you that things happen – furnaces and water heaters go out. But you can mitigate this risk in one of two ways – either work a comprehensive rehab into your numbers or buy a new construction property. I highly suggest starting out with new components so you don’t have a ton of expensive repairs to deal with.
Getting in too deep, too fast. Don’t over leverage yourself right out of the gate! Building wealth is a long-term game. You’ll get burned and discouraged if you get too many loans that you can’t pay. Don’t do it.
Doing it alone. Don’t try to be a hero – you need support on this journey. Surround yourself with people who know more than you do – property management, lawyers, accountants, mentors.. Whatever it takes, make sure you are surrounded by people who understand your goals and can help you reach them. As always, my team and I are here to support you on your journey. Book a free call at morrisinvest.com.
Book a Call with Our Team
morrisinvest.com/bootcamp ← Download your FREE 90-Day Bootcamp!
Rental Market Checklist Video
Subscribe to Investing in Real Estate on iTunes
Find Your Financial Freedom Number
Subscribe to the Morris Invest YouTube channel
Like Morris Invest on Facebook
DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning, at NO additional cost to you, I may earn a commission if you click through and make a purchase and/or subscribe. However, this does not impact my opinion. We recommend them because they are helpful and useful, not because of the small commissions we make if you decide to use their services. Please do not spend any money on these products unless you feel you need them or that they will help you achieve your goals.
Ready To Build Passive Income Through Rental Real Estate?
Ready to talk about your goals? We're here to show you the tools and teach you the process to begin earning legacy wealth for you and your family.