
YOU CAN ONLY FULLY TAKE ADVANTAGE OF THE HUGE UPSIDES IF YOU CAN IDENTIFY AND UNDERSTAND THE DOWNSIDES
There are so many advantages to investing in rental property. Whether you’re looking for instant passive income, establishing long term equity, looking to take advantage of market trends, or simply looking for a smart way to take advantage of the tax code, real estate investment is a smart play, if you know how to play the game…or partner with someone who does. A positive, solution-focused attitude is essential to maintaining efficiency and building respectful relationships with tenants, but it’s obviously a bit naive to think that rental properties are all roses and sunshine. All investments include a bit of risk and the best way to minimize those risks is to fully understand and appreciate them.
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THE BIG 3 THAT CAN SINK YOUR INVESTMENT
There are essentially three big risks that are unavoidable. While you can’t totally sidestep them, you can do your best to manage them in an effort to turn these downsides into opportunities. Being proactive and focused on your goals is essential to not getting pulled into the weeds and potential downward spiral.
LEARN MORE: BALANCING THE LINE BETWEEN PERSONAL AND BUSINESS RELATIONSHIPS AS A LANDLORD
#1: PEOPLE
Humans = Problems. When we say “people” we mean everyone involved in a property. From vendors to tenants to neighbors to city officials, to insurance agents, lawyers, inspectors…and even you. Everyone has their own lens, objectives, and priorities so conflict is inevitable when we’re all coming at issues from different directions. If there’s a dishwasher that isn’t working, tenants just want it fixed as soon as possible, owners likely want it fixed for as cheap as possible, and vendors want to do the job with as little interference as possible. While tenants value getting the job done quickly, they might not be willing to move their schedule around to accommodate the vendor. And owners might take a longer time while they look for a more affordable vendor, increasing the discomfort for the tenants.
Inexperienced landlords might look at people as problems and if not managed correctly, they can be. But every problem also presents an opportunity. Issues that arise can be uncomfortable but they’re often a chance to build and nurture positive relationships. To return to the example above, the time and effort that goes into finding the right appliance repair company could pay huge dividends going forward if you build and maintain that relationship. Keeping the tenants updated on your progress also reminds them that you care and you’re focused on an issue that’s important to them, it’s just taking some time.
LEARN MORE: AS A LANDLORD, TENANTS ARE BOTH YOUR CUSTOMERS AND YOUR BOSS
#2 MAINTENANCE:
Even with the nicest properties, maintenance needs are inevitable. Why do we have maintenance needs? Because of TIME…and PEOPLE. Over time there is going to be normal wear and tear on any property and its furnishings. Like a lawn, if you fail to keep up with it regularly, it could grow into something unrecognizable that will require greater cost and effort down the road. What’s tricky about maintenance is that it is mostly defensive, which doesn’t play as well on human psychology as expenses we see more direct positive returns from. For example, replacing your carpets with a good looking vinyl plank will help you get a higher rent price…but replacing your water heater won’t. Replacing your roof is expensive and fully necessary, but no rental candidate justifies paying higher rent because of the roof shingles you chose.
Maintenance needs to be taken care of to avoid bigger issues down the line. In this way, it is another significant risk for inexperienced property owners. Water heaters, heaters, flooring, door knobs, window screens, hallways, laundry areas, basements, roofs, siding, debris in the yard…these things are all vitally important to keeping your property in proper working condition and to attract quality tenants, but the perceived return on your investment isn’t a great motivator.
LEARN MORE: SHOULD YOU GIVE TENANTS A DISCOUNT FOR HELPING OUT WITH MAINTENANCE?
#3 UTILITY COSTS:
For the sake of a more inclusive argument, we’re going to expand “utilities” to include any things you need to pay for that you can’t control the price of. There are the obvious ones like water and sewer but also some other expenses that might not be monthly so they’re not top of mind. Your mortgage is a set price, but your insurance will increase each year. The cost of garbage disposal continues to rise. Landscaping is getting more and more expensive. In a multi-family, it’s likely you’re covering at least the common area electric. Some others might be paying the electric and/or heating for their tenants. All of these costs are variable…and they certainly aren’t going down!
Utility costs are going to increase and eat into your profits. You need to look at the numbers before purchasing a property. Do not rely on the seller to be accurate…it’s obviously in their best interest to lowball these figures. Ask for invoices, receipts, and statements. You can even call utility companies yourself and inquire. It may seem like a small item but a couple hundred bucks a month can make the difference between a property that is profitable and one that is not.
The more you spend on utilities, the less you may have to cover that all important maintenance, and the harder it will be to successfully manage the people and relationships that are vital to successful real estate investment.
LEARN MORE: HOW TO AVOID LARGE LOSSES ON YOUR UTILITY BILLS
IN SUMMARY:
Speaking of relationships, Nexus Property Management® is a company that’s been in the business for over a decade and we specialize in cultivating strong relationships. Nexus has been managing multi-family and single family properties since 2013. We continue to craft and perfect our best practices around win-win solutions for clients and tenants alike. If you’re interested in learning more about Nexus’ services and you're in one of our many territories, contact any of our teams across Arizona, Connecticut, Massachusetts, and Rhode Island.
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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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