Risks involved in rental real estate

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Hi - I've been interested in buying rental property for a few years, and lately have been looking into it more seriously (viewing listings, etc.). I just want to make sure that I have a good sense of the risks involved - I've always been conservative with my money and would hate to end up in a position where my property is losing me money. I would plan to buy and hold the property long-term.

The biggest risks seem to be long-term vacancies, which I feel could be basically controlled for by buying a multifamily or apartment building and by focusing on areas with a stable or growing population (where there isn't a large oversupply of housing). Also, potential large expenses would be another risk (tenant destroys an apartment, large repairs, etc.), along with deciding to sell the property shortly after buying, though I don't plan to do this.

Currently I've been focusing on properties in areas that I'm more familiar with, and have been looking at larger multifamilies or apartment buildings in decent areas (not a higher than average crime neighborhood) that are fully or nearly fully rented with around 8%-10% cap rates (from reading other posts, I know I'll have to verify the cap rate myself). This would seem to be a very low risk situation - is that correct?

Additionally I was curious about the stress involved. I would guess that with a good property management company who'll deal with non-payment of rent, repairs, etc., that as the owner, there wouldn't be much to deal with on a day-to-day basis and hence would be a pretty low-stress situation. Am I off base here? I just don't want to get involved in something that's going to keep me up at night.

Thanks

[Ned Carey]

I think the biggest risk is paying too much. This comes from not understanding the hidden costs. Things you mention like turnover cost, repairs from bad tenants, reserves for major repairs and upgrades, etc.

Most of the burnt out landlords I have talked to paid too much. They didn't have enough profit to cover those hidden costs. They got stressed out because they didn't plan for them.

The other cause of burnt out landlords is bad management. I recently talked to a formerly burnt out landlord that was now excited about her rentals. The difference - she fired her property manager and manages them herself. She has fewer problems now.

My point is not that you should manage them your self but that managers can be a real problem.

Good Luck,