Are Rental Properties A Good Investment?

By PropertyClub Team
Feb 15th 2022
Rental properties are a good investment because they can bring extra income every month without work. If you select an ideal property, you can bring in money for yourself and provide a home for those who need one.

If you’re interested in learning more about rental properties, you’ve come to the right place. Read on to learn more about why rental properties are a good investment.

hash-markBenefits of Investing in Rental Property 

Flexibility to Sell

The greatest benefit of investing in rental property is that you have the flexibility to sell the property whenever the market is good, all while collecting rent in the meantime. If the market isn't great, you can continue to rent out the space until you can get a better price selling, and make more money on your investment.

It’s critical to map out a plan with your tenant if you want to sell the home. Keep an eye on the market and communicate with them when the time is right. You should talk with your tenant to ensure they'll be able to move out when you sell your investment property. 

Passive Income

A rental property is an excellent way to make passive income. Once you have the property and have fixed it up, you can make a steady amount of money without too much work. The funds from the rental property can go right into your bank account or into a retirement fund for the future.

It’s critical to consider all the expenses before investing in a property to ensure you will make more than it costs to take care of the place. If you’re spending more on fixing it up than the monthly rent brings in, it’s probably not worth your time.

Greater Security

There is a level of security that comes with an investment in a rental property. If you’ve inherited a home or have invested in an empty home you plan on flipping, it’s at greater risk as vandals and squatters are more likely to take advantage of a space left empty. Renters fill the space and keep track of maintenance issues. If you always have people inside the home, you will experience more peace of mind. There is always someone there to inform you if things go wrong.

Value Appreciation

If you rent a property, you can make money while seeing if the value appreciates. Rather than selling at a random time, you can make an income while seeing what the market does in the meantime. It’s the safest way of selling a home.

It’s critical to do your research before you purchase a rental property. Some areas appreciate at different rates than others.

Opportunity to Move In

A rental property can serve as an excellent backup home to have on hand if things don’t work out with your current residence. If you find yourself unable to pay for your home, you can move into the rental instead. You can also utilize it as a temporary home if it’s in a more convenient place.

Of course, you will need to speak with any tenants. You can’t break any of the rules and regulations that come with the lease if you want to move in. 

hash-markDownsides of Investing in Rental Property 

Requires Many Funds

You have to have enough money to purchase a rental property before you can rent it out. This price point includes the base price of the place, maintenance fees, utilities, and anything else that might come with the area. It’s not something you can do spontaneously.

The best way to purchase a rental property is to set aside a bank account and save up for it or buy one with an unexpected income, like a bonus. The faster you can pay it off, the more money you can make from the renters who move into the building.

Rising Taxes and Insurance

If you invest in a rental property, your principal and interest will stay the same. However, taxes and insurance premiums do not. There is a possibility that these will rise significantly on your rental property.

It’s unethical to drastically raise the rent to pay off taxes and insurance premiums. Be comfortable with your spending before purchasing a rental property.

Difficult Tenants

Most landlords perform extensive research before anyone moves into their rental property. Unfortunately, there are still some bad tenants that slip through the cracks. They might make a habit of paying late or be the most demanding people on the market. They’re the individuals that drive you crazy the longer they rent from you.

Unfortunately, if there’s a lease in play, you will have to deal with the tenant living under your roof until their lease is up. It’s part of the job that many don’t enjoy. Of course, you don’t have to live with them. It’s possible to handle annoying tenants if you’re not close to them all the time.

Landlord Position

Being a landlord is hard work, and it’s not for everyone. As a landlord, you will need to do things like raise rent and be firm with tenants who are not abiding by your rules. Not everyone fits this position, and that’s okay. 

If you’re not confident in your position, you could lose money as people take advantage of you. Being a landlord means establishing boundaries and sticking to them. Don’t trap yourself in the position of landlord if you aren’t great at setting boundaries.

Neighborhood Decline

Although many neighborhoods improve as time goes on, there is always the possibility that the area around a rental property will decline. This action will make the house less appealing for tenants and lower the value.

It’s critical to examine the market and look at the current trends. These will help you determine if the location of your rental property is an area that will thrive as time presses onward.

hash-markWhat You Should Know Before Investing in Rental Properties 

How Much Will You Make? 

It’s critical to consider how much you’ll make as a landlord. What will you spend on the property? What will fix the cost? How much are you going to charge for rent a month? Add your income and subtract your losses for the most accurate result.

If you’re going to make less than expected, consider if the work you’ll put into the project is worth the money you’ll make. If it’s less than it should be, you might want to avoid putting money down on a rental property for now.

Where is the Property Located?

Where is the property located? Is it a safe area or one that people would be better off avoiding? Can they walk to places like the grocery store or the library? There are tons of things to consider.

It’s critical to determine whether the area is prepared to increase in value over the years or decrease. This answer will help you determine what the future might bring.

What Tenants Do You Want?

Decide on the type of tenant you want before you begin the interview process for a renter. If you have a type in mind, it shouldn’t be too difficult to set boundaries with the people that come in. You might want only women, or you might want someone under 50. The choice is yours.

If you don’t decide this ahead of time, you might have trouble selecting the best occupant. Know what kind of tenants you want before jumping into the process head-first.

Can You Manage the Property?

Are you capable of managing the property? Are you soft-spoken and sweet, or are you firm and hard-headed? It’s best to be confident if you want to manage a property.

Managing a property also takes a significant amount of work. You will need to screen clients, make fixes, and appease your tenants when something goes on. Can you handle all of these requests, or are you better suited for something else?

Is It Ready for Immediate Rent?

Although fixer-uppers can be fun, they’re best for people who want to make the house their final living space. When searching for a rental property, select one that’s already built and ready for rent.

If you have the money, you can work on a fixer-upper and then rent it out. However, most people should purchase a home that has already been around the block a few times but is in peak condition.

Can You Handle a Difficult Tenant? 

Are you able to handle a tenant that proves to be difficult, or will that be a problem for you? Many individuals have difficulty with confrontation. If you’re not ready to handle a difficult tenant, you’re not ready for a rental property.

Screenings can only tell you so much about a person. Once they become a renter, you’re at their mercy.

Have You Considered Associated Expenses?

When you purchase a home, there are associated expenses on the side. For instance, the HOA might require homes to pay a fee for services like trash and mail delivered to the door.

It’s critical to plan for additional expenses on top of the home price. This amount is significant if you’re not ready to pay for it.