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Is investing in rental properties really worth it?

Written by Grant McDonald Posted On Thursday, 06 January 2022 20:52
Is investing in rental properties really worth it?

For a long time, rental houses have served as a passive source of income. Real estate investment has generated and keeps producing some of the world's wealthiest people. 

However, before you join the ranks of those who are already making a fortune in the real estate market, you must first learn the fundamentals of owning a rental property. As per recent findings, one-third of Americans live in rented housing. 

Real estate, like any business, is complex and requires careful planning. You must know how to locate a rental property, purchase a property, and discover suitable tenants. But, before you go to all that trouble, ask yourself if it's really worth it. Is it wise to invest in rental properties?

Here is the list of reasons why we should invest in real estate:-

1. The immediate environment

The community in which you buy will impact the type of tenant you attract and your rate of vacancy. Students are likely to represent most of your potential tenants if you buy property near any university, and you may find it hard to fill up the vacancies every summer. 

2. Taxes on real estate

Property taxes will almost certainly differ greatly depending on where you live, so you'll want to know how much money you'll be losing. High property taxes aren't always negative in a good neighborhood with long-term tenants, for example, but they can be detrimental in less desirable locations.

All tax information will be on file at the municipality's assessment office, or you can speak with local homeowners. High property taxes aren't always negative in a good neighborhood with long-term tenants, for example, but they can be detrimental in less desirable locations.

3. Crime Rate

Nobody wants to live near a high-crime area. The local police station or the public library should have crime statistics for the neighborhood. Examine the rates of vandalism, major and petty crimes, and note whether criminal activity is on the rise or falling. It would be profitable if you also inquired about the regularity with which police officers patrol your neighborhood.

4. The Labor Market

More tenants are lured to places where job opportunities are growing. To find out how a particular area ranks in terms of job availability, consult the US Bureau of Labor Statistics or a local library. When a major firm announces a relocation, workers looking for a place to live will flock to the area in droves. House values may rise or fall depending on the sort of business conducted. You can assume that your tenants will want that firm in their backyard if you do.

5. Convenience

Take a walkabout the neighborhood to see the parks, gyms, restaurants, public transportation, movie theatres, and other amenities that residents like. City halls may hand out promotional booklets to help you figure out where the best mix of public and private land may be found.

6. Future Prospects

The local planning office will be able to provide information on any existing developments or proposals for the region. It's a fantastic growth location if there's a lot of building going on. Keep track of new construction that may depreciate the value of nearby properties. As a result of the new housing, your house may be strained.

7. Vacancies and Listings 

If a neighborhood has a lot of listings, it could be due to a seasonal cycle or a community in decline; you'll have to figure out which. In either case, high vacancy rates force landlords to lower rents in order to attract renters. Due to low vacancy rates, landlords can hike rents.

8. Average Rents

You'll need to know the average rent in the area because rental income will be your bread and butter. Make sure that any rental property you're considering can cover your mortgage payment, taxes, and other expenses. Thoroughly research the area in order to forecast its Future in the following five years. Today's inexpensive property could lead to bankruptcy later if you can afford the region now, but taxes are anticipated to rise in the Future.

9. Natural disasters

Insurance is another expense you'll have to deduct from your taxes, so you'll need to figure out how much it'll cost. If the neighborhood is prone to flooding or earthquakes, insurance costs can eat into your rental income. Apart from natural disasters, there are many fixes in the house that you may want to account for, especially fixing things in the kitchen, which is one of the primary draw for homeowners.

10. Liquidate at the right time

Typically, in times of trouble, owners sell their properties quickly, endangering the returns. Despite the fact that there is no database or scientific approach to pricing or determining the best time to sell, a professional intervention or a qualified property manager would be able to protect the owner's interests based on facts and market conditions.

Getting your rental property rented is only the beginning. To get the most out of the game, you must be fully alert. Otherwise, it may not turn out to be a wise financial decision.

Grant McDonaldGrant McDonald has more than three decades of experience in the real estate industry and more than a decade in the real estate finance space. He is currently Vice President - Corporate Development at 14th Street Capital - America’s premier hard money lenders for real estate investors.

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