the book on rental investing

Investing

Is Investing in Rental Property a Good Idea for You? How to Tell

March 29, 2019 | by Jamie Ayers

At A Glance

The opportunity to invest in rental property and earn passive income is attractive to many. However, in order to enjoy the rewards of being a landlord, you have to know if you can handle the responsibilities that come with it. Here’s how to tell if investing in rental property is right for you.

the book on rental investing

Investing in rental property holds the promise of increased income for many. While it’s true that investing in rental property can help you earn more and improve your cash flow, it’s also true that making this financial commitment without being ready can cost you a great deal in the long run.

So how do you know if you’re ready to invest in rental property? Fortunately, there are some signs that indicate that this investment might be the right thing for you to do. If you believe the items below apply to you, then you’re probably in good shape to venture into the world of rental property investment.

You Can Handle the Financial Commitment

First and foremost, investing in a rental property takes a considerable amount of money up front. This is particularly true if you’re renovating a property before you rent it out. Aside from the initial costs of purchasing the property and conducting any necessary repairs, you also have to consider the ongoing annual costs involved.

Some of the fixed costs you’ll have to account for include property management services, property taxes, and routine care and maintenance. Variable costs might include things like unexpected repairs, storm damage, and natural disasters.

It takes a fair amount of financial stability to be able to take on these costs, but if your financial state is such that you could absorb these expenses and still be okay, continue on down the list.

You Can Handle the Tenants

In a perfect world, tenants are respectful, friendly, and pay their rent on time. They leave the place spotless, dealing with them is a pleasure, and they never cost you an errant dime.

In the real world, however, that’s almost never the case. No matter how careful tenants are, there’s going to be ongoing repairs needed as people come and go from your rental units. What’s more, some tenants are going to require a higher level of management than others.

If you’re not interested in dealing with people, managing them, and collecting overdue rent, then investing in a rental property might not be right for you. On the other hand, if you’re great with people and you don’t mind dealing with the occasional problem tenant, you’re still in the game.

However, be sure to do some research on what it takes to be a good landlord before you get in too deep.

You Can Handle the Maintenance

Beyond the financial requirements associated with maintenance, there’s a lot of time you’ll need to invest in it, as well. Not only do you have to maintain the physical location as a whole, but you’ll have to get used to a ringing phone as individual tenants need assistance.

Even if you’re good with people and you can handle the financial responsibilities of regular upkeep, if you don’t have a personality that’s compatible with unexpected and frequent interruptions from tenants who need your help, you might want to find another investment opportunity.

You Think It’s Worth the Trouble

Even if you know that tenants are unpredictable, maintenance is ongoing, and the financial rewards are likely to come after a hefty investment is made, you might still believe that investing in rental property is right for you.

Some people — in fact, most people who keep up their rental properties — see the not-so-glamorous tasks associated with rental property investment as part of the job. And for most, dealing with those minor inconveniences is well worth the freedom, passive income, and sense of community that can often come from owning a rental property.

If that sounds like you, then here are some tips for how you can get started.

How to Get Started Investing in Rental Property

For those who want to forge ahead and invest in rental property, there are some things you should know to help get the ball rolling.

Mind Your Location

First and foremost, pick a good location. The old adage is right: location is everything in real estate. Be sure to do your research and pick a location that’s likely to sell well, fill up quickly, and earn a decent rental rate.

Start Small

It’s usually a good idea to start out with a smaller property and grow from there. If you do well with your first property and you love it, then expand from there. However, starting out with a small property will help you minimize some of the risks and afford you a smaller up-front investment. That way, if things go south, you’ll be able to walk away relatively unscathed.

Renovate Conservatively

Yes, your rental property needs working plumbing and a solid roof. No, it probably doesn’t need an alarm clock that speaks to you and makes your coffee.

It’s easy to get excited about your first rental property and over-improve its current state. While you certainly want to add features and aesthetic touches that make it more likely to sell, remember that every home renovation you make is an investment you’re making, as well.

Don’t get so carried away with upgrades that you lose money before you even start.

Consult a Real Estate Agent

Be sure to have a professional guide with you along the way. An experienced real estate agent who has worked extensively in the area of rental property investments can help you avoid mistakes, make better decisions, and ultimately be more successful.

Any time you’re looking to buy a rental property, contact a real estate agent and ask for advice. Doing so can help you avoid pitfalls and conduct important calculations, such as how to determine the depreciation on your property. Having a professional at your side will ultimately make your endeavor more successful and help you feel more confident moving forward.

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