Most would argue that the risks of owning rental properties are fairly obvious, yet you’d be surprised how many people ask me what they actually are. If you are brand new to real estate investing, it would make total sense that you might not completely understand the specific risks in a way that allows for a bigger-picture view. This is simply because you don’t know what factors to look at. Or even if you aren’t brand new, sometimes it’s just helpful to get a very general overview of things as a way to help drill it in and help you better understand it.
Before even talking about the risks, one thing you want to be very clear about when it comes to rental properties are the numbers. I didn’t know a thing about how to run numbers on a prospective rental property when I first got interested in real estate, and I’ve since learned that most people really don’t have a clue about them.
The truth is most properties don’t make good rental property investments!
I usually hear it’s in about the 80% range that properties actually don’t pan out financially as rental properties. Why is this? Because the numbers don’t work.
What do I mean “the numbers don’t work”? It means that your actual expenses (which are usually more than what people realize) exceed the income on the property, and therefore, you lose money. Losing money is not the point of investing. Making money is.
For help on understanding exactly how to run numbers on a rental property, check out “Rental Property Numbers So Easy You Can Calculate Them on a Napkin.”
Why am I mentioning the numbers?
Because all risk involved with rental properties is directly related to the numbers. I can tell you the risks of rental properties, and you will understand them well enough. But if you really understand more about the numbers and what goes into actually receiving returns from them, the risks will just make all that much more sense.
