If you are thinking about purchasing a rental property make sure you are not making your decisions based on common, incorrect assumptions. With rising prices and historically low interest rates the real estate investor is back in full swing. However, buying a rental property and counting on it to pay for your retirement or provide you easy monthly passive income may not be a smart move.
Home vs. Investment
Arguably the most pervasive myth when it comes to investing in real estate is the belief that buying a home is a great investment. To be clear, buying multiple rental properties and relying on rental income from those properties can actually be a good investment. However, purchasing your primary home and relying on it to fuel your retirement is rarely ever a good idea. Your house isn’t an investment, ATM or piggy bank. It is a place to live in. Do not forget that.
You Can Lose Money on Investment Properties
It can also be easy to convince yourself that you can get rich by buying rental properties. Simple math can certainly seem to suggest that: buy a property with a $1,200 mortgage payment, collect $1,600 in rent, and instant profits and growing equity in the property…WRONG. Not so fast, though. There are countless other issues to consider. Not all properties will appreciate in value. Meanwhile, while you own the rental property, you might be collecting rent payments, but you will also be making property tax payments and paying for insurance, maintenance, and repairs. Many homeowners enjoy tax breaks on their primary homes, but those breaks are not always applicable to investment properties.
Also, being a landlord is not easy. You might have been a model tenant in your own renting days, but many renters do not or cannot make timely payments. Evictions are never a fun experience. You will also have to deal with calls at inopportune times to fix a leaky roof or replace a refrigerator that stopped working. Or you can hire a property manager and pay additional fees every month. Even good tenants are not perfect. They will rarely take as good care of your property as you would, and when they leave, you may face unexpected necessary repairs. Even without that, you will likely need to freshen up the place with new paint, etc. Furthermore, it can take a while to find a new tenant, too. An empty rental property will certainly destroy even the most conservative budgets.
Direct vs. Indirect Real Estate Investment
There is a common misconception that the only way to invest in real estate is by directly owning residential rentals properties. Many investors are not comfortable with the idea of buying multifamily rental properties or commercial real estate due to the perception of it being more difficult working with business tenants.
However, one alternative is a REIT. Real Estate Investment Trusts make the commercial real estate world a lot easier to navigate. With various types of REITs, you can concentrate on commercial investment in areas like retail space, office buildings, industrial facilities, or even niche areas like hospitals and healthcare facilities or rental storage units. REITs have management teams that will handle all the ins and outs of property ownership, and they will take a cut of the profits. The REIT structure typically also means that you will have part-ownership of a wide array of different properties, giving you diversification that’s hard to achieve with your own personal real estate portfolio.
The above are some of the factors to consider before investing in real estate. Ward Damon can guide you through the above factors and numerous others to make a decision when it comes to your real estate investments.
Adam R. Seligman, concentrates his practice in the areas of residential and commercial real estate law for Ward Damon. If you need help buying real estate or establishing residency in Florida, please contact Adam at email@example.com or call 561-842-3000.