Due to recent economic uncertainty, the US stock market has been making headlines, with some experts predicting September 2019 to be a “rough” month for stock investors. Because of this, many are selling stocks and looking for alternatives. One such alternative is a rental house investment. Investing in rental property is rewarding but you need to know whether it’s time to invest or to wait before you can take the plunge.
Related: Buying a Rental Property vs Stocks: Which Is a Better Investment Decision?
The real estate industry experienced a large downturn from 2000 to 2007. And so before you get into the business of rental houses, you must be self-assured that it is the best investment alternative for you.
Let’s learn the factors to consider before investing in rental houses as shared by Grade Miners.
5 Things to Consider Before Investing in Rental Houses
If you are new to the industry, you might be tempted to think that investing in rental houses is an easy way to financial independence and a source of passive income. Your mortgage will be taken care of by your tenants together with other rental expenses and so you will have to chip in little effort.
As Joseph Cherry, the author of Academized Reviews advises, investing in rental houses is one of the best routes for earning a passive income, but you need to do enough research before you take the plunge, else, you will fail to achieve your goals within a few years of investing. And this is where rental investment rookies hit a snag.
Well, if you ask any investor, they will tell you that investing in rental houses is a good idea but you must consider the following five points before you decide whether it’s the best investment method for you.
1. Get Prepared Financially
Before you take the plunge, make sure your finances can allow you to invest in rental houses.
Investing in rental property is a long-term commitment that, if you are not cautious, will eat up your finances without providing benefits. It’s not a get-rich-quick venture, and so you should consider it a long-term investment.
Before you even start looking for investment properties, ensure you have finances to cover all your expenses. If you have some expected expenses such as college fees for your children or you still need to use the money for your next year’s projects, then it might not be the best time to invest in rental houses.
You also need to ensure you have funds for the expected and unexpected expenses because they will definitely be there.
You can flip the home whereby you buy and sell it in a short period of time, although this depends on the housing market. Therefore, if you know you will need these funds to do other things in the near future, perhaps you should not take the plunge.
2. Decide Whether You Are Ready for the Responsibilities That Come with the Venture
Are you ready to be a landlord? Are you ready to stand the headaches of dealing with naughty tenants? What about the ups and downs that come with being a landlord?
Of course, you will encounter all these. You will have to deal with people.
Investing in rental houses is one of the best routes to continued lasting wealth creation. However, it has plenty of ups and downs. In fact, professional investors say it is not for the fainthearted.
Even though you will hire a property manager, you will still need to be there to oversee the day to day work. After all, there are things your property manager can’t handle.
So if you are not ready or you are unsure whether you can handle it, consider other ways of investing in real estate.
3. Think of It as a Business, Not a Passive Investment
After watching some get-rich-quick videos by YouTube gurus, many people think that investing in rental property is a passive investment and forget that it’s a business like other businesses out there. Well, investing in real estate has plenty of benefits but when done correctly and with a lot of considerations.
If you watch YouTube videos by financial freedom “experts” you will get misled easily and start with the wrong expectations that you will earn passive income without a hassle.
If you ask the experienced landlords, they will tell you that there is no hectic business you can compare with investing in rental houses. There is a lot of work to be done.
For instance, as a landlord, you will be tasked with:
- Looking for good tenants– Advertising, screening, assessing tenant’s integrity, etc.
- Legal work- Finding a good lawyer, signing the lease agreement, getting the deposit, etc.
- Monitoring– You will have to make sure rents are paid and on time, you will take care of maintenance, unclogging toilets, etc.
- Customer service– Whether it’s Monday or Sunday, during the day or at night, you can always expect to receive a call from your tenants. Some calls will be hectic to handle and you will have to ensure everything is taken care of.
And these are just a few of the responsibilities that will be on your hands as a landlord.
4. Are You a Handy Person?
It’s not a question, things will break down. Are you ready to handle the situation or will you always be outsourcing repairs and other small things?
Many landlords have failed to profit from their rental houses because of frequent outsourcing of repairs which sometimes are costly.
Some contractors will overcharge you when they know you are green when it comes to matters to do with repairs and this will make the costs involved in maintaining your property go up. Therefore, it’s better to be a handy person.
5. Understand How to Play with Numbers
There is no better time to make money than the time of purchase, says Andrew Collins, a real estate manager and consultant at Best Essays, one of the best assignment help providers in the UK. That means you will make good money when you properly buy an investment property.
What are we trying to tell you here?
Understand everything you need to know before you buy a property. Do you need clarification on something? Ask before you buy. Don’t wait to ask later when you’ve already bought an investment property as this will lead you to troubles and financial problems later.
Understand your operating income, your expected ROI, and your cash on cash return. Nothing is complicated by the way. But you must educate yourself so that you are aware of all the methods of making money in rental houses.
Investing in Rental Houses- Is It Worth It?
Whether you are investing in real estate or other businesses, you must understand it’s a risk. The good thing about investing in rental houses is that the benefits can outweigh the risk when done correctly.
Just do enough homework, weigh the pros and cons, decide whether you can handle it, and start your journey to financial freedom and possibly a route to earning passive income.
This article has been contributed by Kristin Goad.