Real estate has been a favored investment for many years, but historically, it has been an option only for those with substantial financial resources. Nevertheless, recent trends, such as house flipping, "house hacking" (occupying a part of a property while renting out the remainder), and short-term vacation rentals, have made real estate investment more accessible to millennials who are seeking an additional source of income in an unpredictable economy.
Despite the potential for significant returns, not everyone is well-suited to becoming a landlord. Owning rental properties necessitates significant upfront expenses, time commitments, legal obligations, and ethical dilemmas that can erode your profits. Therefore, before you take out a loan to purchase an investment property in an emerging neighborhood, it is critical to consider these three aspects.
Managing rental real estate can be done in several ways, ranging from complete hands-on involvement to delegating management to someone who has never seen the property in person. When considering your options, it's important to evaluate the amount of time and money you can devote to a potential rental, as well as the market you intend to enter.
If you have more time than money, you might prefer a fixer-upper you can bring up to market value with low-cost do-it-yourself projects. If you have the cash but not the time, it may be better to purchase a place that’s ready to rent and even hire a property manager to handle the day-to-day upkeep. But with rising mortgage interest rates — up to almost 7% as of this writing — and property prices increasing every year nationwide, investing in real estate may be out of reach for many
Real estate investments entail unique challenges, including the possibility of upfront and ongoing repairs, vacancies, and tenants who fail to pay rent, all of which can reduce your profits and jeopardize your ability to make mortgage payments.
Before committing yourself, it's crucial to ensure that you have sufficient funds to weather any downturns. Maintaining a cash reserve or credit line can be helpful if your property remains vacant for several months or if your tenant experiences an emergency and is unable to pay rent.
Nancy Neiman, who resides in Claremont, California, rents out an in-law suite to supplement her mortgage payments after refinancing her property, notes that if you require full occupancy and rent to break even, without any room for flexibility, your mortgage may not be sustainable.
RELATED LINKS
U.S. Department of Housing and Urban Development: Tenant Rights https://www.hud.gov/topics/rental_assistance/tenantrights
NerdWallet: Smart Money Podcast: ChatGPT vs. the Nerds, and Rental Properties bit.ly/nerdwallet-smart-money-podcast-chatgbt-vs-the-nerds-and-rental-properties