Money is the main motivation for real estate investment, the most important reason people invest in real estate, and its usually the first people to think about when they think they own real estate properties.
One of the advantages of owning income producing property is that income from the rent can be quite large if a property is purchased and handled properly. If a property investor does not pay for a property, keep costs down, rent the apartments and keep the building well maintained, real estate investment can generally make investors money even when the investor is asleep
Even so, there are factors that can lead to a property investment losing value. In addition, it can have a drastic effect on the ability of a rental income to generate profitability, despite the investors efforts.
Okay, lets look at the 7 worst contributors to the deterioration in rental value.
The community that surrounds the income property can change in different ways that affect your property income. Increased unemployment can, for example, lead to reduced rents, which in turn means reduced maintenance that causes construction destruction, which in turn causes the entire district to slow down and thus triggering a domino effect that simply correlates with the problem. The nearby construction of facilities such as sewage treatment plants and airports is likely to have a negative impact on the area. Also, perhaps more subtle and slower in coming, is a decline due to increased crime, which may be due to an adjacent city change over.
For example, the effect of being directly under the airplane flight may have a negative impact on a propertys ability to attract or retain tenants. Similarly, the construction of a major highway or intersection can limit access to the property and cause noise and dirt through the construction to drive the tenants out. Perhaps the result may be an increase in your property value for real estate, but construction may take up to a year or more and during that time you can expect your real estate investment value to fall.
Regular controls and regulatory changes to the zone planning can have a negative impact on real estate investments. For example, property investors who buy raw land for development can see their plans ground due to a building moratorium or development atmosphere. Everyone who naturally results in a degrading value.
Whether its air and heating equipment, power stations, power cables, water heaters and boilers, roof construction, plumbing or paint, it will require maintenance and or replacement sooner or later. The value of property properties is reduced by the economic obsolescence outdated if they are not properly maintained.
Two main factors of supply and demand mean that the value of real estate goes down overcrowded and tight money. Surface construction is straightforward. For example, with multi family houses, overbygged would mean that there are many more apartments available for rent than there are tenants to rent the units. In this case, the market can fall rapidly and stay down long since new construction gives the market a superstructure. Strong money means less access to long term financing from lenders and hence less qualified buyers to your rental property.
A discharged property in the neighborhood, if left unchecked, may lower the values for all adjacent properties. A degraded property, for whatever reason, will have a negative impact on your property investment.
Highly motivated sellers can lower a property at purchase price prices and smart investors are looking for property owners who have to sell to benefit from the owners strong motivation to unleash the property. Always try to avoid reaching ever when you have to sell.