Money is the number one reason to invest in real estate, the essential reason people invest in real estate, and often the first thing people think of when they consider owning investment real estate.
One of the advantages of owning an income-producing property is that the rental income generated can be quite considerable if the property is purchased and managed correctly. If a real estate investor doesn’t overpay for a property, keeps expenses low, apartments rented, and the building well-maintained, a real estate investment can often make money for the investor, even while the investor sleeps!
However, there are factors that can cause a real estate investment to lose value. Additionally, it can have a drastic effect on a property’s ability to generate profitability with rental income, despite an investor’s best efforts.
Okay, let’s take a look at the hands down 7 worst contributors to rental property impairment.
1. Neighborhood decline
The community surrounding the rental property can change in a variety of ways that negatively affect your real estate rental property. Increased vacancy, for example, can lead to reduced rents, which in turn means reduced maintenance that causes the building to deteriorate, which in turn causes the entire neighborhood to fall into decline and thus it triggers a domino effect that simply aggravates the problem. The nearby construction of facilities such as sewage treatment plants and airports will also likely have an adverse effect on the area. Also, perhaps more subtly and slowly, is a decline due to increased crime, perhaps as a result of an overflow from the next neighborhood.
2. Impact of adverse infrastructure
The impact of being directly under the flight path of aircraft, for example, can have a negative impact on a property’s ability to attract (or keep) tenants. Similarly, construction of a major road or intersection can limit access to the property and cause construction noise and debris to drive out tenants. The result may be an increase in the value of your investment property, but construction can take up to a year or more, and during that time you can expect the value of your investment property to decline.
3. Controls and Regulations
Government controls and zoning regulatory changes can have a negative impact on real estate investment properties. Real estate investors buying raw land for development, for example, may find their plans stalled due to a building moratorium or anti-development sentiment. All of which, of course, results in plummeting value.
4. Wear and tear
Whether it is the heating and air conditioning equipment, the surface of the driveway, the electrical wiring, the heaters and hot water boilers, the roof structure, the plumbing or the paint, sooner or later it will require maintenance and/or replacement. The value of investment real estate is reduced by items of economic obsolescence (obsolete) if it is not properly maintained.
5.Supply and Demand
Two main supply and demand factors drive home values down: overbuilding and a lack of money. Oversized is easy. With multi-family ownership, for example, overbuilding would mean that there are many more apartment units available for rent than there are tenants to rent the units. In this case, the market can decline rapidly and remain low for a long time when new construction saturates the market and causes an overbuild situation. Tight money means less long-term financing available from lenders, and therefore less qualified buyers for your rental property.
6. Lack of proper maintenance
One blighted property in the neighborhood, if left unchecked, could lower the values of all adjoining properties. A property in disrepair, whatever the reason, will have an adverse effect on your real estate investment.
7. Pressure to sell
Highly motivated sellers can reduce a property to bargain prices, and savvy investors look for owners who must sell to take advantage of the owner’s strong motivation to get rid of the property. Always try to avoid getting to the point where you are forced to sell.