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Reasons Investors Come to Regret Rental Property Purchases

Reasons Investors Come to Regret Rental Property Purchases
by Jerome Foster - May 26, 2022,

Although many real estate investors are able to generate massive returns with desirable rental properties, such investments aren’t always slam dunks. While rental property ownership does stand to bolster your finances, it may also facilitate considerable regret. So, if you’ve been kicking around the idea of purchasing a rental property, make a point of doing your research beforehand. As you’ll find, there are numerous reasons people come to regret rental property investments.

They Didn’t Research the Local Rental Market 

Investing in a rental property without researching the local rental market is a tremendous gamble – and one that’s unlikely to pay off. So, before proceeding to make an offer on a property, do some research on local rental rates and demand. Should you discover that a property is located in an area with very little demand for rentals, it may be in your best interest to set your sights on other prospective investments. 

When conducting your research, it’s important to determine whether you’re dealing with a buyers market vs sellers market. For example, if a property is located in a popular area with massive demand, there’s a good chance it will be able to turn a healthy profit. On the flipside, properties found in areas that are generally undesirable or have slow rates of growth are often unable to command high rents.    

They Didn’t Have the Property Inspected Before Buying 

Investing in a rental property – or any property, for that matter – without enlisting the aid of a seasoned home inspector can be a costly mistake. If you’ve personally inspected the property, you may think that you’re aware of any and all problems that need to be addressed. However, certain issues can only be spotted and diagnosed by professional home inspectors, and if you forgo a pre-purchase inspection, you’re liable to find yourself stuck with a money pit.

The absolute last thing any investor wants is to be stuck with a property that has extensive structural, electrical or plumbing problems. Not only do such issues make properties undesirable to prospective renters, they can also be exorbitantly expensive to fully repair. Furthermore, if any of these issues cause problems for tenants, you may find yourself dealing with lawsuits and/or low renter retention rates.    

They Discover That the Property is Too Expensive to Maintain 

The larger the rental property, the pricier it is to maintain. For example, the more units a property contains, the more maintenance personnel you’ll need to hire. Additionally, if a property encompasses quite a bit of land, you’ll need to pay for various groundskeeping and landscaping expenses. What’s more, if a property is fairly old, there’s a good chance you’ll be dealing with large-scale repairs on a consistent basis. 

So, before proceeding to purchase a rental property, take care to calculate the monthly operation and maintenance costs. Depending on how much of a profit this property stands to generate, you may find that these costs are entirely reasonable. However, investing in rental property without a solid understanding of how much it will cost to maintain is practically guaranteed to bring about feelings of regret.  

They Fail to Screen Prospective Renters 

No rental property can be profitable without renters. Taking this to heart, many first-time landlords abstain from screening prospective tenants. After all, the screening process can take time, and they want their properties occupied forthwith. Still, failing to properly screen rental applicants can result in you taking on tenants who are unable or unwilling to keep up with rent. So, before giving any applicants the green light, make sure to run a credit check (with their permission, of course), confirm a consistent source of income and get in contact with any references they list.

If you have little to no experience in rental property ownership, it’s easy to see why you might regard every rental property as a worthwhile investment. While it’s true that many rentals are able to provide their respective owners with consistent passive income, it’s important to remember that this is not always the case. So, if you fail to do your homework and make the necessary preparations in advance of purchasing your first rental property, buyer’s remorse will be a very likely outcome. After all, as evidenced by the examples provided above, there’s no shortage of reasons for which people come to regret sinking money into rental properties. 

Author

  • Jerome has worked for an international real estate magazine in the past before joining Prudentialcal. He now spearheads our team of writers and ensures the quality of content we produce weekly.

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