Although no one who buys residential or commercial real estate ever wants to think about their real estate investment losing its value, it can happen. And not unlike a perfect storm of colliding fronts, it can have a drastic effect upon a rental income property’s ability to generate profitability. Here are undoubtedly the worst contributors.

Decline in Neighborhoods

The community surrounding the income property simply changes in a variety of ways that adversely affect the location of the real estate income property. This slide (usually due to a lack of good long range planning) can and does cause the owner to face a number of challenges. Increasing vacancy can eventually lead to reduced rents. As a result, less income often means reduced maintenance. As the building deteriorates, it influences the whole neighborhood, and in turn triggers a domino effect that simply compounds the problem. In this case, the best the owner can hope for is a new economic conversion brought into the area.

Adverse Effects of Infrastructure

The impact of an airport that puts a residential property directly under the glide path of an aircraft landing, for example, can have a negative impact on a property’s ability to attract (or keep) tenants.

Governmental Controls

Regulatory changes to zoning can impact the real estate development industry and, in fact, grind it to a halt. Real estate investors should never purchase real estate based on yesterday’s rules and regulations, otherwise they may find one day that the property’s use no longer meets the investor’s needs. It’s always prudent to visit the local planning department during the purchase process and make the offer contingent upon buyer approval.

Economic Obsolenscence

All things just have a habit of wearing out. Whether it’s air and heating equipment, driveway surface, electrical wiring, hot water heaters and boilers, roofing structure, plumbing or paint, there is no lifetime guarantee and sooner or later it will require maintenance and/or replacement. A smart way to deal with this is for the landlord to maintain a sinking fund that sets money aside in anticipation for future replacement costs.

Supply and Demand

The availability of long-term financing is a prime contributor. But it’s a two-edged sword. Whereas low interest rates can be a blessing to real estate developers, apartment owners may feel the curse of higher vacancy due to a shrinking poll of tenants who become home owners; and vice versa. Moreover, when new construction gluts, and an overbuilt situation occurs, the market can decrease quickly and stay down for a long time.

Lack of Proper Maintenance

A run-down property in the neighborhood is never a good thing. Whether its due to an absentee owner, poor management, lack of funds, or some other owner problem. Each often results in a deteriorating property that affect the values of properties that adjoin or are nearby it.

Urgency to Sell

Highly motivated sellers may reduce a property to a bargain basement prices. All investors should try to avoid ever reaching the moment when they are forced to sell.

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