Every investment comes with a certain amount of risk. While Orlando real estate investing generally involves lower risk than some other ventures, effective rental risk management can further reduce your exposure. To help you protect your investment, below are some risk management strategies.
Common Risks
Everything from bad tenants to ignored problems can wreak havoc on your investment income. By doing your due diligence as a responsible property owner, you can enhance your Orlando rental risk management approach and drastically decrease potential issues.
Poor Tenant Screening
Properly vetting tenants is arguably the most important aspect of owning rental properties. There’s a strong correlation between proper vetting and a lower frequency of issues with renters.
Good tenants offer you reliable income by always paying on time and taking care of the property. They also offer long-term income stability by staying an average of 3-5 years.
On the other hand, bad tenants rarely pay on time (if at all) and even may have had recent evictions. They’re also more likely to break stipulations in the lease agreement, do damage to property, and steal appliances. This makes your turnover costs skyrocket before you can place new tenants.
Never sign a lease or accept funds from an applicant before properly vetting them. If you find red flags after the fact, it’s too late to reverse the agreement (a fact they likely already know).
Letting Little Issues Stack Up
You might overlook smaller issues in the rental, but letting them go can lead to unhappy tenants and bigger problems down the line. If you fail to address little things and let them stack up or worse aren’t even aware of problems, you’re showing the tenants you don’t care.
Good tenants (see above) will want to live in a well-maintained home. Lots of little issues may lead them to make multiple work order requests. Frustrate good tenants enough, and you increase the likelihood that they will not renew.
In addition, huge problems usually start as something small. Catching things early can help avoid bigger headaches down the line. Make sure the property is in good shape by conducting annual or bi-annual inspections. This helps ensure the property is being taken care of and that you identify potential problem areas.
Preventative Maintenance
Homeowners know to conduct proper maintenance on their high-dollar appliances like air conditioners and water heaters. The same applies for rental homes. Companies will typically offer annual or bi-annual inspections for air conditioning, plumbing, electrical, etc.; the cost is typically only $200-300 a year.
You’ll also want to ensure regular gutter cleaning, landscaping, and overall structural condition. Again, here’s where periodic inspections can help you ensure your property is in good shape.
Other Considerations
There are additional risks that real estate investors may not immediately think about, but should have on their radars to reduce risk.
Personal Assets At Risk
You may not think about your personal home and assets as a risk for a rental property. However, unless you place the investment property in an LLC or a trust, your personal assets could be at risk in a lawsuit.
Before you put any rental property in your name only (if you already have), talk to an attorney who specializes in real estate investment structures. We can offer referrals if you need them.
Portfolio Structure Problems
If you only own property in one area or properties in lower demand, you expose yourself to potential risk.
Owning properties in different places helps spread out risks should one area become a saturated market or experience a downturn with a closed/downsizing employer. Owning rental properties in highly populated or high-growth areas is also a way to reduce portfolio risk.
Likewise, knowing your market helps. For example, did you know that 35% of tenants prefer single family homes while only 10% prefer townhouses? In addition, townhouses and condos tend not to appreciate as well and HOA fees can kill an investor’s ROI.
Buying in Saturated Rental Markets
If you’re looking to expand your portfolio, look for areas just beginning high growth. Getting in early allows you to benefit from the appreciation and growth while finding tenants more easily.
If you buy into an area late, you’ll find more competition, higher prices, a saturated market with more rental units than demand. For example, the Disney area is an extremely saturated short-term rental market.
Have an Exit Strategy
Owning rental properties will cost you money at some point. Many rental property owners only think about the present and don’t necessarily have a long-term plan for the property. For example, some new build owners will want to sell after 5-7 years, cashing in on the equity before any large repair expenses arise. Other owners view rental properties as a long-term hold and a part of their future retirement plan. In those cases, replacing the high dollar items like the roof and HVAC system as required, is the cost of doing business because the long-term value outweighs the short-term financial cost.
Hire a Professional Property Manager
Partnering with an experienced Orlando property management company can help you mitigate many of these risks.
Property managers work with a trusted network of vendors and know the markets better and what will get their clients the highest value. They have access to better background checks and have more experience dealing with all types of tenant shenanigans. Plus, property managers keep eyes on the property to nip any weirdo behaviors in the bud.
Learn how The Realty Medics can become part of your risk management strategy for your rental properties. Call us at 321-946-7653 or request a free rent analysis. With expert guidance in Orlando rental risk management, you can enhance your investment strategy and ensure peace of mind.
