The question remains, is buying an investment property worth it? After the real estate crash of 2007-2008, how does one know that real estate is a good, long term investment? Why should I buy real estate when there's bound to be another crash? Let's see if buying investment properties are worth it.
Yes, it is worth it to own an income generating property - that first part is the key, the income part, often called the cash flow. But that means you have to good a loan with a good interest rate if you're not buying the property with cash. Where is the value in owning an investment property when inflation is nearly equal to the appreciation rate many years? What about the added costs of property tax, homeowners insurance, and then the maintenance of the property itself?
No wonder it's a common question we get, is it really worth it to own an investment property when it's all said and done....let's try to figure that out. What about potential problems that could arise with a tenant or something going wrong with the property itself? Is it worth it to own a rental property when you add up everything....?
Despite all of these risks, yes, it is worth it to own an investment property, if you pick the right rental property to purchase. That's the key, of course. If you rush in and buy a rental property with out doing the due diligence, you run the risk of losing money. Here are some things to consider:
- Don't over pay for the property
- Get the right loan and interst rate
- Keep tenants happy- maintain the property
- Purchase liability insurance to protect yourself
- Buy properties in locations where there's high demand (good schools, access to quality stores, with parks and thriving communities)
- Not just good schools but what school is the home assigned to - that can make a big difference if you're renting to families with young kids
- Hire a property management company to look after your properties if you live out of town or don't have the time to maintain your properties
Whether or not an income property makes you money depends upon the level of your research, work ethic, networking, experience, dedication, and overall effort you put in to buying the property.
Do you have patience or do you want to make easy money? You can make easy money in the long run with a smart investment property but you have to do the behind the scenes work and build up a network and knowledge in the real estate market your investing in.
The goal of course is to have a steady cash flow from quality tenants. What about those tax deductions on your mortgage interest? They don’t add up to that much, really.
The key is operating an investment property, as a business, that pays on a monthly basis if you run the property with integrity and you’ve done you research from the beginning before you bought the property. Meaning you have a good loan with the right interest rate and didn't over pay for the property.
Is there area you bought the investment property in growing? You want to buy a rental property where the depend for housing is growing. So, look at the number of business and companies that are expanding or moving into the area. Also, look at how the city or town plans on improving the area with parks or building new roads. What are the schools that the home is assigned to? How is the crime rate in the area where the home is located? These are the types of things you have to investigate and can do a preliminary search on sites like Trulia.com for many of these stats.
Back Up Plan
Create a back up plan. Could you live in the property if you were having trouble making money on renting the property or couldn't find the tenant? Do you know a friend of family member who is willing to bail you out if there’s an emergency? If you choose your property correctly, one that pays for itself, you should be in a good situation, but it doesn’t hurt to have a contingency plan in case of an emergency.
Negative Cash Flow
Many investors don’t want to own property if there’s negative cash flow. But look at your individual financial situation, maybe you can manage to deal with a negative cash flow for a period of time, since you see the property has the potential to gain in appreciation and the tax benefits are there, it might be wise to take advantage of this opportunity if you have a long term outlook.
Plus, there are things you can do to make an investment property more valuable, whether that's by adding an additional room or updating or adding another bathroom. But those have big costs that you have to weigh.
Again, it comes down to choosing the right property and having a good plan. Don't jump in and buy a property unless you're financially stable and can deal with any problems that might come up - perhaps that might be not having a tenant for a few months.
Overall though, buying real estate has been a good investment over the long run if you choose your property wisely.
Learn more: How to Calculate Your ROI