I have explained to many potential rental investors many times that real estate is a long term investment. If you plan and set your goals right – you will be pleased with the results. But if you approach buying and renting homes as a means of extra income to make your car payment – you will end up frustrated.
For many, they just cannot see past what is in front of them - and that tends to not make a good investor. Here are some basic thoughts about owning a rental home:
If you are lucky enough to have extra income each month after expenses, it’s a good idea to keep those funds in a reserve account for potential issues that might arise, i.e., repairs, vacancy, etc.
It is not a good idea to budget extra rental income as a means to make your car payment, or other payments. The reason I put this out there is because rental income is not always guaranteed, or not come at all.
If your plan includes annual rent increases – or you want to raise it because your expenses are going up - reexamine the results. Quick calculation: raising rent by $25 will bring you $300 more annual – raising it by $50 brings $600. Your rent is between $800 and $1000 a month – if a tenant moves out – a vacancy will cost you that every month until you re-rent it. So what is the benefit?
Finally, owning a rental home is going to cost you money. You will not always break even, nor will you have extra at the end of every month. It is important to keep it in perspective and look at profit from the long term. Example: an owner recently sold a rental home owned for 20 years – never raised the rents and made 6 mortgage payments that cost him $4800. Tenants made the other 234 payments or $187,200. The home sold for $255,000. Even if his expenses were $20,000 over the years – I say, he did well.
Don’t be short sighted with investing in real estate – it is a long term investment that you will benefit from if you plan it right and are patient.
This blog is written with my opinions and my opinions are presented with accuracy but not guarantees. Please talk to a professional before making any real estate, financial or agency decisions. Gabrielle Kamahele Rhind - 2014. If you want to reprint parts of this - just email me for my permission: KGCProperties@gmail.com .