How do you mitigate rent related risks

[Sandeep Pai]

Let’s say I find a property that’s just barely cash flow positive (I am in the SF Bay Area so its hard to find great +ve CF deals.. not impossible but difficult for new investor). One of my concerns is how to mitigate rent related risks such as:

#1 One of the renters stops paying rent but promises they will pay next month , and then next month..

#2 If the rents in the area go down 3-5 years down the line due to macro factors, suddenly making the investment cash flow negative

#3 If the area downgrades 3-5 yrs down the line, and it becomes harder to find renters at all

How do you mitigate these risks or how have you handled them if you experienced these situations (or others that hit your top line)?

[Matthew McNeil]

Originally posted by @Sandeep Pai:

Let’s say I find a property that’s just barely cash flow positive (I am in the SF Bay Area so its hard to find great +ve CF deals.. not impossible but difficult for new investor). One of my concerns is how to mitigate rent related risks such as:

#1 One of the renters stops paying rent but promises they will pay next month , and then next month..

#2 If the rents in the area go down 3-5 years down the line due to macro factors, suddenly making the investment cash flow negative

#3 If the area downgrades 3-5 yrs down the line, and it becomes harder to find renters at all

How do you mitigate these risks or how have you handled them if you experienced these situations (or others that hit your top line)?

 Mitigate?  Firstly; I avoid investing in areas or assets where scenarios might happen that you've presented.  Secondly; I invest in Class A neighborhoods and buy median priced properties that families with good credit and stable jobs want to rent.  I also have a PM that doesn't put up with any delays or excuses from a tenant such as promising to pay rent...followed by another promise.  

In 10+ years of owning rental properties I've never experienced the scenarios you've highlighted.  Granted, I'm not saying I'm immune to those problems, but I can offer this; if I faced these problems or recognized the potential for an area to "downgrade" as you wrote then I'd 1031 Exchange myself out that door and pivot into a better neighborhood or market or asset class.