Our Blog

WHAT DO WE DO AND HOW MUCH DO WE CHARGE

We take care of everything and our service is all inclusive

Enter your name and email now to receive the details right away!

Is Rental Property A Good Investment

01 Mar
Leo Chrenko March 1, 2020 0
Spread the love

A lot of aspiring investors are wondering, “Is rental property a good investment?” Like any investment vehicle, investing in real estate has risks. Especially if you don’t know what to look for in a property.

Rental properties remain to be one of the best asset classes you can invest in. It’s an investment vehicle that can potentially bring you solid cash flow, capital gains, and tax breaks.

However, you need to be careful not to purchase just any property. Just as Robert Kiyosaki, author of the best-selling book “Rich Dad Poor Dad” said, “You make money when you buy an asset, not when you sell.”

This article will help you understand how to determine if a rental property is a good investment.

Advantages And Disadvantages Of Owning A Rental Property

Before going any deeper into this topic, you need to know the advantages and disadvantages of owning a rental property. There are several advantages and disadvantages, but we’re only going to cover the biggest and most important ones. But you can read more about it in this article.

Advantages of Owning Rental Properties

  • Provides income and cash flow from tenants. Real estate investors buy rental properties because of this reason: cash flow. They get monthly rental property income that covers their mortgage and gives them a hefty profit. A lot of real estate investors prefer this because to them, their properties are making monthly paydays.
  • Gives you money once you decide to sell. Buying and holding are one of the most famous strategies in real estate investing. And the best way to hold a property is to rent it out. Why? Because you’re getting cash-flow while you’re waiting for the value of your property to go up. Once it’s up, you can decide to sell it. Just note that the price will depend on the condition of the market and your property.
  • Tax write-offs. This depends on your location. But generally, you can write the money you spend on your investment properties off your taxes. These are expenses for repairs and maintenance, insurance, mortgage, property taxes, etc. We suggest you consult with your local attorneys to help you with this concern.

Disadvantages of Owning Rental Properties

  • Significant amount of capital. You need a lot of capital to start your real estate rental ventures. You need to prepare not just the initial investment needed to buy the property. You also need to have cash in case of an emergency and for repairs and maintenance.
  • Tenant risks. There are cases where rental owners didn’t do enough due diligence on their tenants. In the end, the tenants trashed the property and left. They had no choice but to repair the unit and throw away thousands and thousands of dollars. This is why we always encourage our clients to perform background checks for those who are interested in renting their property. It will save you a lot of headaches down the road.
  • Personal involvement. You need to manage your property and check it regularly. You need to collect the rental fees of your tenants. And if your tenants have concerns, you need to be available most of the time. The best way to handle this risk is to hire a property manager. But if you’re starting out, you might not afford one. So, you have to do everything yourself.

How do you know if a rental property is a good investment?

But how do you know if a rental property is a good investment? Here are some tell-tale signs:

  1. The One Percent Rule. This is a general guideline most real estate investors follow. Generally, if a potential rental income of your property is equal to or more than 1% of the total mortgage, you’re looking at a good investment. For example, if you’re looking at a $100,000 investment on a property, the minimum possible rent for that should be at least $1,000 (1%). If not, you need to look for other properties.
  1. Get a feel for the condition of the property. The condition of the property is a big indicator of the price. You also need to investigate if a property is still in good condition and has a nice curb appeal. If it doesn’t look well-kept and clean, it’s a tell-tale sign that you need to step away from the deal.
  2. Notice how it’s being presented. Is the real estate agent rushing to present to you everything? Does the realtor know what he’s talking about? Does he have expertise on the property, the market, and the location? Sometimes, listing agents just want to make a quick buck so they’re going to pressure you to buy the property. Don’t let yourself be caught in this.

Is a rental property worth it?

If you’re the kind of investor who wants to have consistent and solid cash flow, then rental properties are a good investment vehicle. It doesn’t just give you profit through capital gains – it gives money into your pocket right now.

However, if you don’t know a thing about Real Estate investing, I suggest that you study what you plan to do first. Or hire a professional assessor to help you determine if you’re paying a fair amount of price for the property.

Ultimately, you need to determine your risk appetite and the kind of investor you are before deciding what to invest in.

Rate This Post

Subscribe to receive monthly updates

Join our mailing list to receive the latest news and updates from Bolld Real Estate Management

Login

Register

Compare Listings