Things That Can Kill Rental Property Profits

investment property

Are you thinking about buying a rental property in the Central Valley? If so, even though an investment property will help you to generate passive income, the reality is that there are five things that can kill your rental property profits.

1. Maintenance

Understand that when you own a property, there is an obligation on your part to make sure that you are keeping a safe and habitable property for the tenant to live in. This is not something that you have an option to do. This is something that you have an obligation to do by law (and normally by your local property code).

You can’t just let the tenant live in a property that is unsafe or uninhabitable—you must fix things that are in need of attention. If you don’t, things will go wrong in a hurry.

I have learned that if you do not fix it correctly—you want to use the cheap person to save as much money as possible—what normally ends up happening is the person has to come back three more times. They’ll never fix it correctly.

Now you’ve got an upset tenant, and you’ve paid three times the amount. No one is happy. And you know what eventually happens is your tenant ends up leaving.

Guess what happens after the tenant leaves? You still have the problem that you still have to fix, but now you don’t have the rental cash flow coming in—you just made your problem worse.

Don’t do something like take a $50 water drip problem and turn it into a several thousand dollar mold issue because you don’t want to take care of a small maintenance item. Remember, these things do not go away.

This is your investment property, and you’ve got to take care of it and treat it correctly.

Maintenance is the biggest property killer that you will deal with when it comes to owning a rental property.

2. Vacancy

Vacancy is something that is a very, very stressful time. Normally, vacancy is not something that’s planned. You don’t want to have a property not producing revenue, not producing income.

So what happens when your property is vacant is you are stressed. When you’re stressed, you start thinking worst case scenario. Maybe you thought your property would be rented in two weeks, but now it’s two months later and it’s still not rented.

What happens next is you start making emotional decisions that are not in the best interest of your investment property. Maybe you accept tenants that you should not accept. Maybe you lower the rent too low, and now you have a tenant that is not someone that you want in your property. And you did it all because of emotions.

Know that when you have a property and you have a rental investment, there are going to be times when there is a vacancy.

If you know there are going to be periodic vacancies and you don’t want to experience stress over it, take some money and put it aside. That way, you are not putting yourself in a bad financial position. And more importantly, you’re not putting yourself in a bad, stressful position, because you made a bad decision and you did not pre-plan the vacancy.

3. Communication

Poor communication has got to be one of the main problems—not just in rental properties—but in any business.

And remember, you are in the customer service business. Your tenant has the ability to take their business elsewhere.

You communicating with your tenant and you letting them know what’s going on and setting proper expectations when the tenant moves in is so vital. When it comes to having a rental property, you don’t just own four walls and a roof. You have a business inside of those four walls and a roof.

And you’ve got to make sure that you are communicating with your client. That client is your tenant.

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