Owning Rental Properties: Positives and Negatives
Many people look at those who own and/or operate investment/rental properties, and wonder, wouldn’t it be great to do it themselves? While some individuals and properties make a lot of sense, others don’t! Like most things in life, owning an investment property has positives and negatives, and you owe it to yourself to fully consider, with your eyes wide open, some of the many factors and considerations involved. With that in mind, this article will attempt to consider, review, and briefly discuss some of these variables and considerations.
1. Comparisons/competitive, opportunity costs, uses of your money: Does buying and owning a particular property maximize its possibilities and return on investment, compared to other alternatives and uses? In other words, will doing so give you the most money? When considering any real estate investment, start by fully evaluating, not only the initial purchase price, but also how much will be needed, both in the short and long term! Take the purchase price, plus the most immediate costs (first 2 years of ownership), incurred and involved. Then conservatively consider and use projected rents (look at the local market and competition, and use a figure of 80%, or four-fifths of that number, to see your rate of return). Look for a minimum rate of return of 6% (for example, if the property purchase plus short-term price is $500,000, your total rent should be about $37,000, so your 80% figure is roughly of $30,000 or 6% of the cost figure). Also, compare this to opportunity: costs, for your money, or what you could likely receive from other investment vehicles.)
two. Bookings: We suggest using the 80% figure, so you are prepared for vacancies, etc. In addition, proceed only when sufficient reserves have been established for contingencies, such as repairs, remodeling, maintenance, conservation. etc.
3. Down payment, versus mortgage/loans: Most purchase these smaller investment properties, with the help and assistance of obtaining a mortgage loan. Be prepared to have enough rental records and reservations to pay your monthly expenses, including mortgage interest and principal, property taxes, insurance, landlord payment, utilities, etc.
Four. Tenants and rents collected: Consider your tenants carefully and look for people who are trustworthy, trustworthy, have good credit, etc. There are various philosophies, and some landlords proceed, seeking the highest rents possible, seeming willing to wait until they get that. However, that philosophy may or may not provide maximum rent-rolls, and the risk is greater periods with vacancies. The other approach, is the one that I personally believe and follow, in the properties that I personally own and/or manage, is rent seeking, in the middle of the pack, providing maximum service to tenants and maintaining/maintaining quality. tenants, for much longer periods than usual. Know your personal risk/reward tolerance and philosophy early on!
Is owning a rental home a good option for you? Know what you are looking for and what you can afford, as well as your risk/reward tolerance!