The Conundrum of Investment Properties
Investors seeking diversification have frequently turned to a rental property or a collection of rental properties to even out and spread risk across their investment portfolios. As with any investment people should consider all of the issues, problems, and pitfalls along with the potential returns. Unfortunately, a lot of investors aren’t aware of the potential problems and do not take the time to investigate these issues before they close escrow. A property management course and a course in basic real estate investment would be great investments of time for someone considering rental properties as a source of investment income and long-term investment. Some of the problems and concerns are discussed below.
Inexperienced Agents and Uneducated Investors Make a Deadly Concoction
Rental property investors often utilize the services of an unseasoned realtor who does not fully understand rental properties, who does not fully understand return on investment, and who does not fully comprehend what cap rates are. Most of the time these investors just turn to their friend ‘the realtor’ or use any realtor they are familiar with or are comfortable with to purchase these types of properties sad as that may sound.
The fact is most real estate agents are not savvy enough to understand rental properties, cap rates, return on cash, return on investment, leveraged investing, and the common terms associated with investment properties. To compound this fact most investors initially are equally inexperienced and lack the proper expertise to locate and purchase a high performance investment property. No one needs to look further than this question: Why would an owner be selling a high performance investment property? That question should be the first of many asked by both the agent and the investor. One problem is that some investors are just so excited to get into a property they look beyond the truth and the numbers and just want to get control of the property. Oftentimes this is a flawed approach because most agents will hesitate to stop the eager purchaser for fear of missing out on a healthy commission.
The Property Management Profession is an Equalizer
After an investor has closed escrow, if the inexperience agent hasn’t offered to ‘manage’ the property for them, many of them decide to manage the property themselves (only licensed real estate brokers can manage rental properties). When these unsuspecting owners are faced with the subtleties of Fair Housing laws, Equal Opportunity issues, civil rights issues, anti-discrimination issues, bad tenant screening issues, notice of default issues, eviction issues, and finally collection issues many times they turn to a professional property manager or property management company to help rescue their sinking ship.
