Many people choose to invest in property and become landlords in Austin so they can realize a consistent, reliable monthly profit. In the right neighborhood, you can easily collect rental income that exceeds the monthly expenses the properties entail … often by several hundred dollars.
This cash flow can help you secure a stable retirement, give you extra money to cover your ordinary expenses, and even snowball to allow you to invest in more properties in the future.
However, investing in rental property doesn’t guarantee you’ll see a consistent profit from month to month. In fact, many landlords in Austin end up being unprofitable.
Why is this the case, and how can you avoid it?
Why Landlords End Up Unprofitable in Austin
These are ten of the elements that can potentially ruin your profitability as an Austin landlord:
1. Overpaying. Profitability is a byproduct of your costs and income. One of the biggest expenses you’re going to face is your monthly loan payment, assuming you take out a loan for the property. If the property is capable of generating $1,500 in rental income and your monthly loan payment is $1,600, you’re going to lose $100 per month, obviously. This sometimes results from paying too much for the property. In a seller’s market, buyers get competitive and risk bidding more than list price. It’s essential to avoid overextending yourself.
2. Underestimating update expenses. There are many ways you may upgrade an Austin property to make it more appealing to tenants – and ideally see more rental income. But upgrades cost money. If you estimate you’re going to pay $25,000 to get the property in better shape, but it actually ends up costing you $38,000, you’ll be $13,000 behind. If your monthly profit is $500, it will take you more than two years to make up the difference.
3. Overestimating rental income. It’s also common for Austin property investors to overestimate the amount of rental income they can bring in. Sober research can show you how much people are paying in rent for properties like yours in a neighborhood like yours – but if you only look at the upper end of the spectrum, you might walk away with unrealistic expectations, and throw off your entire financial model.
4. Accepting risky tenants. Before you can make reliable money on a rental property, you have to find good tenants. Often, landlords are in a rush to get someone settled as quickly as possible, so they skip the vital screening process. Screening prospective tenants should include an assessment of each applicant’s income level, credit score, criminal history, and other critical factors, so you can ensure you’ll get the money you expect.
5. Failing to invest in tenant retention. Every landlord knows it’s vital to attract new tenants to the property. But do you know that tenant retention is just as crucial – if not more so? If you don’t make an effort to keep your tenants happy, they’re going to leave, and saddle you with vacancies that may exhaust your budget.
6. Dealing with unplanned expenses. Even newly constructed houses can turn up structural problems. Bu if you have an older home in Austin, you’re more likely to face potential repairs. Most landlords know enough to set a portion of their budget aside for maintenance and repairs – but if an expensive issue unfolds unexpectedly, it can compromise your profitability.
7. Neglecting to follow up with tenants who don’t pay. Sometimes, even good tenants can forget to pay or find themselves unable to. When this happens, it’s your duty to follow up with them. It’s crucial to notify the tenant that he or she hasn’t paid rent, and escalate the situation as necessary to collect that back payment. Sometimes, this could mean following the process all the way to eviction.
8. Trying to do everything alone. Some ambitious landlords in Austin attempt to manage their properties entirely on their own, with the goal of maximizing profit and retaining control. However, this could lead to high stress and low efficiency; it may be wiser to rely on experts and partners to help you manage your properties well.
9. Suffering from poor insurance coverage. All landlords need to have liability and property insurance in place to protect them financially in the event of a bad situation. If you don’t have proper insurance coverage, or you opt out of certain types of insurance, this could ruin your strategy for financial viability, depending on how things play out.
10. Failing to diversify. As with any investment portfolio, it’s worthwhile to diversify. You should work your way up to owning multiple properties, preferably in various regions, so you’re more likely to enjoy consistent income – and reliable profits.
Key Strategies for Preserving Profitability
It’s comforting to recognize that most of these profitability hurdles can be easily overcome with the right strategies.
These are some of your best options:
- Estimate conservatively. When you estimate anything, make sure you do it conservatively. For example, if you’re calculating the costs of doing a kitchen renovation, assume your materials are going to cost a little more than you would reasonably expect. When you calculate potential rental income, plan for vacancies and look at the lower range of income in the area. You might exceed expectations, which is great, but you’re less likely to end up worse than you might imagine.
- Protect your income. Find ways to protect your rental income however you can. That may mean investing in a good insurance policy, making sure your tenants are happy enough to continue occupying the property, and establishing multiple streams of revenue.
- Work with a property management company. Finally, consider working with professionals who will help you make the right decisions, select the right investments, and ultimately manage your property more efficiently.
Are you interested in investing in Austin property, but concerned about profitability? One of your best options is to work with a property management company that can advise you on your investment decisions and help you manage your properties once you’ve invested.
For a free consultation or more information, contact Green Residential today!