After 20 years working in the overseas buy to let market and also investing myself both domestically and overseas some of the most important lessons I have learned in this time is the importance of great property management and also understanding the risks involved in these types of investments and how to avoid the pitfalls. Before I talk about property management I would like to talk about one of the most frequently asked questions we get asked by our investors which is “ What are the risks involved in buying a rental property in the US and what are the downsides ? “ The reason I want to talk about this is because the risks involved can be minimised with great property management. In my opinion it doesn’t really matter where you buy a house. It can be in the best location, in the best condition, but if the property is badly managed then this can still turn into a bad investment. The property manager is almost as important as the property itself as these are the people who look after the house and the tenants and make sure the property has a positive cash flow and is also kept in a great condition. As a company we endeavour to choose the best property managers in each city we work in but of course we invite our investors to do their own research , as owners they can use whichever property manager they choose. Now for the big one. What are the main downsides or risks if that is what you want to call them that can potentially eat into my nice ROI and how can I avoid them or at least minimiser these risks… Well, this is very simple and can be generalised not just to USA buy to let property but to any buy to let anywhere in the world in my opinion. The 2 main risk factors in any property that is purchased with the intention to rent it out are number one vacancy and number two on going maintenance or upkeep of your property. Now it’s very difficult to put a number on these two factors as each house would be different which is why these figures are not shown on our marketing materials etc. However as a good gauge and I would always explain to any investor that you should deduct a good 4-5% of the advertised ROI to account for any maintenance or potential vacancy. Vacancy and how to minimise the risk This is pretty simple. Every tenant will eventually move out so you will never really find a property that would give you a 100% occupancy so you always need to account for some form of vacancy when calculating your ROI. To minimise this risk firstly choose a great PM. A good property manager will look after your current tenants and keep them happy and ensure they don’t leave or don’t want to leave. Tenants don’t like dealing with a bad PM that doesn’t respond or look after any requests etc. So like I said earlier choosing the right PM is essential. Secondly the location of the property and buying a house that is in a really good neighbourhood is key to keeping your vacancy down. The better the location the easier it is for the PM to place new tenants and quickly. So always do your homework on the area and make sure the street and block is nice and has good curb appeal. As they say Location, location, location…. Maintenance and Up Keep of my property Again this has to be pretty self explanatory. The bottom line is the better the condition the property is in the less upkeep you will have. So if you buy a house that is fully renovated then you would expect to have little or no maintenance really for the first year or so. The condition of the property would normally be reflected in the price and the ROI etc.. So I think that investors that are buying a cheap houses with a high ROI have to understand that this is an investment and that like any property that is purchased you will need to maintain the house and make certain improvements over time. This is a great thing also as when you spend money on your property you are adding value and increasing the value of your investment also. Also when increasing the quality of the house you can in turn increase your potential ROI also. For Example. If you buy a house for $30,000 that is rented at $600 a month but your tenants leave and you spend $10,000 on upgrades and rehabbing the house then you can demand a higher rent like $750-$800 which also increases the ROI and in turn adds value to the home. So obviously if you want to minimise the risk of maintenance then you need to look for good quality houses that are either renovated or updated and rental ready but also understand that these are investments and will need improving over time no matter what condition the property is when you buy it. As a company we have always tried to give a cross spectrum of investments to our buyers and also try to meet every budget so we sell properties in all categories. Fully renovated, updated, rental ready and also renovation projects where clients can buy a house knowing that the property needs work. I think that if our investors consider all of the above factors then there are some amazing opportunities out there not just in the US market but all over the world and the above risks apply to really any buy to let investment. Location, Condition and excellent property management are key. Clever and smart investment is taking into consideration all of the above factors, doing our own homework and going into these types of investments with our eyes wide open and understanding the risks involved and the measures to take to
