People are always looking for ways to generate income, especially as they think about their long-term goals and eventual retirement. Some people are hesitant to invest in the stock market and instead prefer real estate. Buying a property to rent out to tenants can generate a steady stream of income, but there are many factors to consider.
Benefits
Most choose to purchase investment properties to create a steady stream of monthly income. If you purchase a multi-family house and all of the apartments are rented out all year, you can collect more than enough money to cover the mortgage and maintenance and still net a profit.
Any improvements you make to the property, such as fixing the roof, replacing the siding and landscaping, can allow you to ask for and receive higher rental payments from tenants. Those upgrades can also increase the value of the property if you decide to sell it down the road.
Drawbacks
There are some potential downsides that you need to consider. The first is that it may be difficult to find tenants. If there are a lot of competitively-priced rental properties available in your city, it may be a challenge to attract tenants and get the rent you want.
Another reality is that tenants may not always pay rent on time every month even though they’re supposed to. Dealing with tenants who pay late or who do not pay at all can strain your finances. You can evict them, but the process is lengthy. In the meantime, you will not be able to rent out the apartment to generate income.
Owning a rental property comes with significant financial costs. You will be responsible for taxes, insurance, homeowner’s association fees and municipal fees, regardless of whether or not you have tenants. You need to plan for those expenditures and set aside money in case you do not have a steady stream of rental income all year.
Another thing to consider is that a significant portion of your assets will be concentrated in one location if you own a rental property. If the local real estate market suffers, it will be more difficult to attract and retain tenants or to sell the property. You could wind up owning a property in a depressed neighborhood and experience financial losses.
Weigh the Pros and Cons
If you’re looking for a long-term financial investment that can provide you with a consistent source of income, owning a rental property is one possibility. If you buy a house in good condition in a vibrant neighborhood, price the apartments reasonably and thoroughly vet prospective tenants, you might be able to generate income that exceeds your costs to earn a substantial profit.
However, you need to consider the possibility that you could have trouble finding reliable renters and have a backup plan to get through times with less income. Choosing the right property, neighborhood and tenants can increase your chance of success.
