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Income Properties Are Trending, But Is Landlord Life for You?
If the thought of investing your money into brick and mortar excites you, join the club. Nearly a third of Americans consider real estate to be the best place to park money they don't plan to use for at least 10 years.[1] In fact, a growing number of small investors are eyeing the rental market as a potential goldmine.[2] Interest in buying a home to both live in and rent is also on the rise, especially amongst cash-strapped buyers looking to supplement their mortgage payments.[3] But how do you know if you’re well-suited to take advantage of these real estate investment opportunities? Here are three signs that owning a rental property could be right for you.
YOU'RE A HOMEBUYER WHO WANTS HELP COVERING THE MORTGAGE
Increasingly popular with first-time homebuyers, “house hacking” involves buying a property you intend to live in while renting out a portion of it to tenants. It tends to be easier to break into than traditional real estate investing since you don't need as high a credit score or as large a down payment to secure a mortgage.[4] When you house hack, the rent you collect can help cover your homeownership expenses. Another major advantage is that it entitles you to certain tax benefits and deductions available only to landlords.[4]
When it's time to start your search, let us help you find a property that's ideal for house hacking, such as a house with a garage apartment, or one with enough space to build an accessory dwelling unit.
YOU'RE AN INVESTOR LOOKING FOR STEADY AND RELIABLE INCOME
If you don’t want a live-in tenant but still desire an additional stream of income, a dedicated long-term rental property could be a better option for you. Purchasing a rental home can also add diversity and stability to your investment portfolio. According to data from the Federal Reserve, the value of real estate has historically risen over time.[5] However, the rate of appreciation can be hard to predict, so it’s prudent to invest in a property that also offers positive cash flow, which means the rent you take in exceeds your expenses. This strategy helps ensure that you’ll put money in your pocket each month, even if the property’s value takes time to grow.
Let us know if you want to explore opportunities for a rental property that's good for your wallet and attractive to renters.
YOU'RE AN EXPERIENCED INVESTOR LOOKING TO MAXIMIZE YOUR POTENTIAL RETURNS
Another popular way to draw income from an investment property is to convert it to a short-term rental. If you find the right property, you can earn significantly more renting it on a platform like Airbnb than to a long-term tenant.[6] But beware: This strategy can be riskier as certain municipalities have tightened restrictions and others are suffering from market oversaturation.[6,7] The vacation rental market enjoyed a boom during the pandemic, and some inexperienced investors are finding they bit off more than they can chew. As a result, there's an opportunity to snap up some of these properties, but you'll need capital and a willingness to learn the business.[7]
Before you take the plunge, make sure you can answer “YES” to these three questions:
1. Are you ready to be a landlord?
Owning a rental property can take a lot of time and energy. You’re not just buying passive income, you’re also building sweat equity since the time you spend maintaining, marketing, and managing your rental can add up quickly. So be prepared to do some soul-searching to ensure you’ll not only flourish as a landlord, but actually enjoy it. If you want to invest in real estate but aren’t prepared to put in the day-to-day effort required, we can refer you to a property management service for help.
2. Can you afford to invest in real estate?
The last thing you want is to get over-extended with your new real estate venture. Besides the cost of purchasing the property, you’ll need to consider additional expenses, like property taxes, insurance, administrative costs, and maintenance and repairs. You will also need a cash reserve for unexpected issues or potential vacancies. It's important to run the numbers to determine whether you can charge enough rent to offset your expenditures.
3. Have you found the right income property?
Even if you’ve got your finances in order and are emotionally ready to invest, your success as a landlord will also depend on the property you buy. The criteria for a good rental home and a good family home are often different, so it’s important to lean on professionals for advice.
If you decide to invest in a different area, we’ll connect you with an agent who’s more plugged into that community. Reach out today to schedule a free consultation.
BOTTOMLINE
Investing in real estate can be a great way to build wealth and earn extra income, but it pays to be strategic. Call us for a consultation to discuss your goals and budget. We'll help you discover neighborhoods with the best income potential, point out homes most suited to renting, and help you brainstorm the best investment strategy for you.
The above references are opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
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