Should you invest in rental property?
I speak many times about home ownership being better than renting and it is.
But some people are just more natural renters than owners. It means that there needs to be someone to own the rental property, and understanding the value and responsibility that comes with investing in real estate is important before you start.
“Natural” tenants are usually those people who move often, those who can’t or haven’t yet accumulated the down payment or job security to get a home loan or those who don’t want the responsibility of home ownership. You must also know the rights of a landlord and those of the tenant. These are spelled out in many places, but I suggest you talk to a Realtor and an attorney who specializes in real estate before you invest. Remember that the tenant is your customer, so you need to be responsive.
Owning rental property is not a get-rich-quick scheme. It is perhaps the slowest and steadiest method of investing that I know of. It is unlike buying stock or CDs because it requires your time and effort to be successful. Done correctly, it is a road to long-term accumulation of quite a bit of money. Imagine putting money (your down payment) into an investment that might take four to five hours per month to manage, and getting a little positive cash flow every month after paying the mortgage, taxes and maintenance.
After 20 years, you should have the loan paid off, plus the cash flow, and the expectation that the property has had some appreciation. If the property went up just 2 percent every year, then it should be worth as much as 40 percent more than you spent for it plus the small cash flow every month. So a feasible scenario would be to invest $10,000 in a rental property valued at $50,000. If you made just $50 per month of positive cash flow and saved it every month for those 20 years, and the property gained just 2 percent per year in value, in 20 years your $10,000 investment could be worth $82,000-plus. You will not get that return on a CD.
The most important thing you can do before you invest in anything is do the research. Talk to a Realtor familiar with real estate investing. Talk to an attorney to know yours (and the tenants’) rights, and decide if your life, job and goals would allow you to be a real estate investor. Also remember that investing in rental homes is different than commercial buildings or vacant land. Your tax professional can show you benefits I have not talked about that makes real estate investing even sweeter.
Mink-Crouse is the 2018 president of the Warren Area Board of Realtors.