Owning Rental Properties: Positives And Negatives

 Many people look at those who own and/or operate investment/rental properties and ask themselves, wouldn't it be great if they did it themselves? Like most things in life, there are positives and negatives to owning investment property, and you owe it to yourself to open your eyes to consider some of the many factors and considerations involved. Comparison/Competitiveness, Opportunity Cost, Uses for Your Money: Does buying and owning a particular property maximize your options and return on investment compared to other alternatives and uses? In other words, will it make you the most money? When considering any real estate investment, start by fully assessing not only the initial purchase price, but how much will be needed, both in the short and long term! Take the purchase price plus the more immediate (first 2 years of ownership) incurred and associated costs. Then consider conservatively and use projected rental prices (look at the local market and competition and use 80%, which is four-fifths of that number, to see the rate of return). Look for a minimum, 6% rate of return (for example, if the purchase of the property plus the short-term price is $500,000, your full rent should be about $37,000, so your 80% number is roughly $30,000 or 6% of the price). In addition, compare it to the opportunity - the cost for your money or what you could probably get from other investment vehicles).

2. Reserves: We recommend using the 80% number to be prepared for vacancies etc. Also, only proceed when you have sufficient reserves for contingencies such as repairs, renovations, maintenance, maintenance. etc.

3. Cash - Down, Versus Mortgage/Loans: Most acquire these smaller investment properties with the help and assistance of mortgage loan collateral. Be prepared to have enough, rent rolls and reserves to afford your monthly expenses, including mortgage interest and principal, property taxes, insurance, landlord-paid, utilities, etc.

4. Charged Tenants and Rent: Carefully consider your tenants and look for dependable, reliable, good credit, etc. There are different philosophies and some landlords go about looking for the highest possible rent, they seem willing to wait until they secure it. However, this philosophy may or may not yield maximum rents and the risk is a longer vacancy period. The second approach, I personally believe and follow, in properties that I personally own and/or manage, is to seek middle-of-the-pack rentals, provide maximum tenant service, and maintain/maintain tenant quality Know your personal tolerance, risk-reward tolerance and philosophy from the ground up!Find out what you're looking for and what you can afford, as well as your risk and reward tolerance!