Owning investment property has both risks and rewards
Thinking about purchasing investment property? Real estate has produced many of the world’s wealthiest people, so there are plenty of reasons to think that it is a sound investment. However, experts agree, as with any investment, it’s better to be well-versed before diving in with hundreds of thousands of dollars. Here are the things you should consider and investigate.
- Purchasing an investment property to earn rental income can be a risky venture.
- Similar to purchasing a home, buyers will usually need to secure at least a 20% down payment for the property.
- Being a landlord requires a wide range of skills, which could range from understanding basic tenant law to being able to fix a leaky faucet.
- Experts recommend having a financial cushion, in case you don’t rent out the property, or if the rental income doesn’t cover the full mortgage on the property.
1. Consider Your Comfort Level with Being a Landlord
Do you know your way around a toolbox? How are you at repairing drywall or unclogging a toilet? Sure, you could call somebody to do it for you, but that will eat into your profits. Property owners who have one or two homes often do their own repairs to save money.
Of course, that changes as you add more properties to your portfolio. Lawrence Pereira, president of King Harbor Wealth Management in Redondo Beach, Calif., lives on the West Coast but owns properties on the East Coast. As someone who says he’s not at all handy, he makes it work. How? “I put together a solid team of cleaners, handymen, and contractors,” says Pereira.
This isn’t advisable for new investors, but as you get the hang of real estate investing you don’t have to remain local.
If you’re not the handy type and don’t have lots of spare cash, being a landlord may not be right for you.
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