Many see real estate as a risk-free financial investment. However, as with any investment with unsecured capital, you can lose money by investing in rental real estate. Before becoming an investor in real estate, you need to find out about the main risks to which we must pay close attention. We will also see some methods or opportunities to reduce these rental risks. You must protect your investment in order to maintain your financial capital. Unpaid rent: a problem with a poorly paid tenant. Your strategy is fine. You bought an apartment for rent on credit.
You have found a tenant at an attractive rental price compared to your purchase price. You did a good job and you managed to create a positive cash flow or only a little negative. Your tenant will pay almost all expenses (rents, mortgages, insurance, non-levied fees, property tax, etc.) and possibly even taxes on this property income. Everything is going well until then.
The first rent is collected, and your leverage investment has been started. You manage a little red tape or minor repairs that housing needs. Then, without realizing it, your tenant begins to delay his rent payments more and more. Unpaid debts accumulate, and the situation worsens. Although this situation is not the most common, but for some it is quite real and for landlords it is a real nightmare.
Imagine the situation: you have monthly payments and fees for this housing: a monthly mortgage, borrower insurance, home insurance, rent, taxes, etc. Only you no longer receive rent or a small part. You have to pay for it with your own income, savings or other investments. You will then begin a long and complicated process to try and return the unpaid rent. This is currently a laborious process that does not guarantee full repayment of the amounts due.
During all this time it will be necessary to pay all the costs and expenses associated with this housing, in particular, repayment of the mortgage. Some decisions against this risk of unpaid rentals: – Firstly, you need to choose your tenant well. Get to know him physically, exchange with him, and if you do not feel serious enough, reject the file.
You must make sure that he has enough income to pay for this lease so that he respects your property and your lease. – There is insurance to protect against unpaid rent. Only this is not a panacea. Care must be taken with franchises, important restrictions on the choice of tenant, actual payments and the duration of this assistance. However, this can be a good solution, especially for those who cannot afford to take this risk personally. Which will be affected by unpaid annuity, and he will be less likely to default. – Do not let the situation get worse for too long before reacting. Stay in touch with your tenant to find out why he has not paid the rent and when he plans to do it. Each of us may have temporary difficulties. Remain firm, but listen. Have sufficient financial margin or find it. We will return to this question below.
Bricks and mortar investment. Another nightmare for an investor in real estate rent: to find his apartment devastated after the tenant leaves and you have to deal with very important expenses in order to quickly restore it. This is often due to problems paying rent, but not always. Of course, when signing the lease, you needed a security deposit. A rental deposit that allows you to pay for some damage to your home. However, some damage can be expensive and a deposit will not be enough. Then you will need to determine the amount of repair and restoration work and try to get your unscrupulous tenant to pay.
Again, this is not what happens in most cases. However, it is often possible to meet the evidence of violent owners after they discovered a completely destroyed housing. Some solutions to limit losses: solutions will be similar to solutions to limit the risks of unpaid rents: it is good to choose your tenant, insure yourself against these risks or require a guarantor.