It’s 2017, nearly a decade after the housing bubble burst of 2008. The good news? Homeownership is once again on the rise. Subprime loans are a nightmare from the past, and creditors are beginning to loosen prerequisites to acquire credit. It is certainly more of a buyer’s market right now, and even more so if you are a landlord. Landlords can maximize income because Millennials are settling down much later in life, and in the meantime, it is cheaper and more convenient for them to rent. However, before you jump into the business of renting a property, here are the pros and cons of investing in real estate.
- Steady Long-Term Profit. If you want to make an investment for the first time, and don’t know where to turn, real estate is your best bet. The housing market tends to follow a natural rising and falling trend that is generally predictable. The alternative—stocks—is much riskier. The stock market is as much an emotional game as a moneymaking one. Many investors become impatient and are too short-sighted to wait out the game. If you want a lower-risk investment, real estate is a good option. You may have to invest more money upfront, but the property itself is tangible and, making the investment more in your control.
- Receive Monthly Payments. One of the most satisfying parts of owning real estate is the fact that, hopefully, you are guaranteed payment every month. Many people choose to rent out their starter home, for example, when they move into their new home. The mortgage will start to pay off itself, and you will see your profits rise as well.
- Get Tax Benefits. It’s true—you will receive benefits for owning multiple properties. The IRS will present a handsome tax return based on your property ownership. Look up local state laws as well to keep up to date on what you can possibly receive.
- It Can Be a Demanding Job. When you rent out a property, it becomes a full-time job and tenants can be a blessing or a curse on your life. Prior to renting, always perform a thorough background check to make sure you get responsible and trustworthy tenants. A study found 21.7% of residents who were evicted had a prior eviction, which should be at the back of your mind if you see that someone has a history of eviction. In addition, you will have to wear many hats. You will be more than a landlord—you will act as repairman, salesman, moderator, and sometimes more. Fixtures may break unexpectedly and require costly repairs. You may discover your tenant is keeping a dog in your property that has caused damage, or a rogue storm could require new roofing. As a landlord, you must expect the unexpected, and have the money to pay for it.
Turnover Can Be Frustrating. Renter turnover is a frustrating reality of being a landlord. Despite your best efforts, tenants will come and go. After all, tenants usually live in a temporary situation until they buy a home. If you take care of your property and stay on friendly and reasonable terms with your tenants, you may find that your turnover rate is lower.
- The Market is Somewhat Unpredictable. The caveat to the abovementioned pro about being a good long-term investment is that, sometimes, the short-term can be turbulent. The market does have its highs and lows, and can be somewhat unpredictable because there are many variables at play that are outside of your control. However, you can rest assured that people will always need a high-quality place to live; unlike some stocks, you will likely still find a steady stream of profit.
Consider whether investing in real estate is a smart choice for your circumstances and make a solid choice for your financial future.