Who wants to follow Mark Twain’s advice…? “Buy land, they’re not making it anymore.” What if that land comes with a house attached, couldn’t you rent it out and make a profit?
So to the question, “Can ordinary folks make money with a residential rental property?” the answer would have to be yes. It’s possible to increase your income significantly with the traditional tool of a rental property. Keeping the day job while simultaneously being a landlord is one of the favorite strategies of “Get Rich” books and stories abound of multi-millionaires who got that way with a string of rental properties.
But before you go charging out to find your first rental property, consider the following; the idea once you’ve bought your property, got the tenants, and then can just sit back and wait for the money to come rolling in is overly simplistic. It’s not quite like that, because in reality, you’ll need to work! First to buy the rental property, then work to find good tenants and work to look after them.
The reality is you’re still trading your time for money. For some people, the returns aren’t worth the hassle. Others who have handyman skills and enjoy the occasional break in day-to-day routine get tremendous satisfaction from managing their rental property asset.
• A rental property is going to cost you a couple of days a month in maintenance and upkeep – maybe less – supposing you have good responsible tenants.
• A rental property is an investment property, giving a monthly return in the form of a rental payment.
• Investing in rental property is investing in an asset that appreciates. While the great recession found property values plummeting, we forget that historically, over the long run, property values tend to increase 2-3% per year with inflation.
• You may enjoy the landlord lifestyle so much you quit the day job and buy a string of residential rentals.
• Property booms have happened in the past and will happen in the future. If your area does have a property boom and property values increase faster than inflation, you could make larger than average returns.
• There are tax advantages for those who invest in rental property. Only the rental (profit) after expenses – mortgage and taxes – is taxable. Should a property increase in value, the mortgage can be refinanced to a higher amount and the equity taken, tax-free. You can avoid capital gains taxes on an investment property if it is exchanged for another investment property.
• The most common drawbacks of rental property are bad tenants and unexpected expenses. You can reduce the risk of these pitfalls by carefully vetting your prospective tenants and keeping you rentals in tip-top condition.
Rental property investing has challenges and rewards.
There are good reasons that owning rental property is a popular investment option. Collecting rental checks every month and depositing the money in your bank account certainly has its appeal. Consider the details – pros and cons – and see if rental property could be the right investment for you.