People get into real estate investing with a false idea of what to expect from it.
They hear stories about people with huge portfolios making tons of money and consistent increases in property prices lead them to believe that their investment can’t fail.
So many people think that it’s a sure thing and as soon as you have enough money to put a deposit down, you’re set for life. Unfortunately, it’s not that easy and real estate investments can fail for a number of reasons.
Often, people underestimate the amount of work that goes into maintaining a property or they don’t have the money to invest, so their investment becomes run down and they can’t find anybody to rent it.
Many people don’t do enough research about the demographics in the area and end up targeting the wrong people. For example, if you buy a single bedroom flat in an area that is predominantly populated with families, you will struggle to find tenants.
These are just some of the many reasons why a property investment might fail. But if you find yourself in a position where you are losing money, what should you do?
Cut Your Losses
The first option, and sometimes the most sensible, is to cut your losses. If you made a poor choice and bought a property in a declining area, you will soon see the value start to drop.
If people are moving out of the area and the local economy is in freefall, you won’t be able to do much with that property. That’s why it’s vital that you do your research first, but if the mistake has already been made, you should try to get rid of the property as soon as possible.
Companies that offer a We Buy Houses service may be your best bet here because you can get an instant cash offer and close within a week.
At this stage, you are unlikely to make any profits, so it’s all about minimizing your losses by selling quickly before the value of the property plummets even further.
Flip The House
If you have some money to invest in the house, you could consider flipping it instead of renting it out, especially if it’s a fixer-upper.
If you can make some big improvements to the quality of the house and add key features that buyers are looking for, you may be able to turn a profit on the house instead of holding onto a property that drains your finances.
However, this only works if you plan carefully and manage your budget well.
Convert The Property For A Different Use
If you are struggling to find tenants, it may be because the property is not suitable for the kinds of people that want to live in the area. For example, if you have a large house in an area that is primarily populated by single professionals, you are not really offering what they want.
But if you convert the house into multiple flats or add a few extra bathrooms to create a shared house, you’ll find it a lot easier to attract tenants.
By converting a single property into multiple properties, you can also increase your profit margins. However, there are some significant risks here because you have to invest a lot of money to convert the property.
It’s a gamble and if it doesn’t pay off, you will be in a much worse position, so only do this if you have the money to put into it and you’ve done your research to make sure that it’s a relatively safe gamble.
Market The Property As A Short Term Let
Even if you don’t want to invest money in converting the property for a different use, you should consider marketing the property as a short term let.
If you own a property in an area that is popular with tourists, you could consider putting it up on Airbnb and renting it out for long weekends and trips.
Alternatively, you could market your property to business travelers that will be staying in the city for a few days at a time.
You can usually command a higher rent for a short term let so, if you can fill it for the full year, you’ll earn a good return on your investment. However, it’s much less reliable than long term tenants, so this is a gamble.
If your real estate investment doesn’t pan out the way that you thought it would, these are some of the best ways you can save yourself from big losses.