Covid-19 has turned the world upside down, and many people are worried about income, investments, and what the future will look like. This changes the way that people look at their long and short term investments and cause debates on whether to pull money out of the market with the current volatility of the stock exchange. Right now, you get instant equity in real estate purchases and begin generating income to supplement what you already have in investments. This will help you weather the ups and downs of the stock market and potentially increase your income as time goes on.
Let’s look at the pros and cons of rental real estate investment and help you make an informed decision on whether investing in real estate is the right choice for you.
Residential real estate includes rental properties of single-family homes, apartments, duplexes, townhomes, condominiums and mobile homes.
Pros of Investing in Residential Real Estate
- Tax advantages – You can factor in deductions such as property depreciation, mortgage interest, the cost of repairs/maintenance/services, and travel costs.
- Control of investment – You can choose to buy a property at a price that fits your budget. You can set the amount of rent to charge, and set your budget for a property manager, or manage it yourself.
- Steady flow of income – Your mortgage payment goes out, rental income comes in, and that cycle becomes dependable on the 1st of every month.
- Appreciation – Your properties should appreciate at least as fast as inflation (~2% annually) which is better than the interest rate on most savings accounts.
Cons of Investing in Residential Real Estate
- Property management – Whether you decide to hire a property manager or manage the properties yourself, it can be costly and time consuming to repair houses, get them clean and ready for new tenants, and maintain the grounds. Many professionals suggest hiring a property manager to maintain the homes, freeing you up to manage the investment side.
- Location is critical – It can be costly to purchase a residential home in a prime location. This may make it more costly to prepare the property for renters. Be sure to obtain the cost of permits, contractors, and materials before you jump into a residential purchase.
- Keeping tenants – It is important to work with a lawyer to create a rental contract that protects you as well as your tenants. You need to ensure you will be able to collect rent on the first of the month regularly and have a plan in place in case tenants are unable to pay.