With all of the uncertainty our country has faced recently, it’s no surprise that new investors I mentor are feeling anxious about starting a real estate investment business in the current economic climate. The most frequent question I receive in my inbox these days is “should I buy rental property now?”
The current market conditions may be a little intimidating to inexperienced investors. Though interest rates have risen a bit in the latter half of the year, they’re still low enough to entice many buyers, leading to a competitive market. Plus, prices are up on average and still rising in most of the country, squeezing the ROI for many flips. However, the combination of low interest rates and rising prices means this could be a good time to invest in a long-term holding strategy such as a rental property.
Let’s discuss the challenges you’ll likely face when investing in the current market, and some tips for overcoming them.
The Challenges of Buying Rental Property Now
- Investing while prices are high: Since average home prices are so high right now, it can be challenging to find an undervalued property to invest in. In the current market, you should aim to make a 4-5% ROI in your first year—meaning your profit for the first year should equal 4 or 5% of the total cash you put into the property. So, when you’re evaluating a potential rental property, you should estimate how much money you’ll invest versus how much you’ll be able to rent it out for. If you can’t make a 4-5% ROI without charging above the market rates for rent, you should pass on the property.
- Finding reliable tenants: Finding reliable tenants is difficult even in the best of times, and unfortunately, the economic effects of the pandemic hit renters especially hard. Though eviction moratoriums and other emergency tenant protections are expiring, you may still find it challenging to get paid on time. Plus, every landlord seems to have a story about a nightmare tenant destroying their property or needing to be forcefully evicted. To find reliable tenants, you need great marketing, as well as thorough applications, interviews, and background checks.
- Maintaining the property: Unlike a flip, in which you’re only responsible for a property during a short window of time, rental property is a long-term investment. For the duration of that investment, you need to keep the property safe, clean, and in good working order. In addition to regular, routine maintenance, you might also field late-night phone calls about emergency plumbing issues and other expensive and time-consuming problems. When you’re shopping around for an investment property, you need to factor in maintenance and upkeep costs when calculating your potential rental ROI. You should also make sure you have enough money set aside to cover both the routine and emergency maintenance on your rental property.
Overall, I think all these challenges are manageable as long as you’re smart about your investments. Let’s take a closer look at some of the benefits of buying rental property now.
The Benefits of Buying Rental Property Now
- Earning a passive income: Many real estate investors are drawn to rentals because they want a stable monthly income to supplement their earnings from flips. As long as you choose the right property, keep your operating costs low, and find reliable tenants, you could earn a passive income to help you fund your other real estate investments. That’s why I recommend buying a rental property if you’re a new investor who wants to quit the corporate grind to start your own business, but you’re afraid of losing a stable paycheck.
- Building equity: The longer you hold on to the rental property, the more it’s likely to appreciate in value. Plus, even if the market experiences a dip, you can afford to wait it out because you’re still earning a steady income from rent. Then, when prices are high enough, you can take advantage of the market upswing and sell the property. That’s why long-term real estate investment strategies like rental properties are popular during volatile economic climates.
- Taking advantage of tax breaks: Another reason to consider adding a rental property to your investment portfolio is to take advantage of the tax breaks available to landlords. You can often deduct mortgage interest, repair costs, travel expenses, legal fees, and other costs from your taxes, helping you increase your profit margin. It would help if you discussed the tax breaks for rental properties with your accountant to get a complete picture of how much money you could save as a landlord.
In conclusion, I believe this could be a great time to buy a rental property, as long as you have the right combination of real estate investment training and tools, as well as the work ethic to back it all up.
Gain the Confidence to Buy Rental Property Now
Ultimately, whether you choose to buy a rental property or stick with a traditional house flipping strategy, you’ll only succeed if you have the right tools, resources, and support. As an independently owned and operated HomeVestors® franchisee, I gained the confidence to diversify my portfolio with rental properties thanks to the comprehensive training, one-on-one mentorship, and state-of-the-art real estate investing tools. Plus, with access to the nationally known and trusted “We Buy Ugly Houses®” marketing campaign, I never worry about running out of quality leads on rental properties.
Are you still asking yourself, “Should I Buy Rental Property Now?” That means it’s time to contact HomeVestors! Reach out today for more information on becoming an independently owned and operated HomeVestors franchisee.
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