rental property BLOG2

Considering Investing in Rental Properties?

02/01/2023 Written by: Kristine Simmons

Rental properties can offer a reasonable return on your investment. But, there are also financial risks associated with purchasing houses to use as rentals, especially for the inexperienced investor.

The first barrier for the would-be landlord is purchasing a suitable rental property. In order to be cashflow positive, it must generate enough monthly income to cover mortgage payments, insurance, taxes, short-term maintenance, and major repairs.

Eric Roberge, a Certified Financial Planner with expertise in real estate, writes in Kiplinger that it's not easy to make money as a new landlord. He says that people often don't realize "how much skill and luck are required to break even."1  Setting financial challenges aside, people who have never owned a rental most likely have no idea how time-consuming it can be.

"Ask any seasoned real estate investor who manages properties with tenants about their unexpected list of duties," says Roberge, "and they will tell you about repairs going massively over budget, evictions and entanglements with the court system, or other rentals-gone-wrong horror stories."  Additionally, recent changes to state laws have made it more difficult to find good tenants (restricting screening criteria) while making it more difficult to get rid of bad tenants, even ones who have stopped paying the rent.

Finally, sinking money into a rental comes with opportunity costs—your investment capital can't be two places at once. Money tied up in an income property can't be potentially compounding in a globally diversified securities portfolio.  There are times when it's smart to be a landlord, such as renting out a house that would otherwise sit empty. Just be wary of the passive-income fantasies so many are peddling, and if you're thinking about delving into real estate, be sure to talk with us about how it should fit into your long-term plan.

1. http://go.pardot.com/e/91522/-passive-real-estate-investing/8b5dqc/1696977817?h=5gDXQnkwGQxBteoL0bZYsXr89qX5hoHOf97MBPJULGg

Charitable Donation square edit
Charitable Giving
Wealth Management04/24/2024

When developing your estate plan, you can do well by doing good. Leaving money to charity rewards you in many ways. It gives you a sense of personal satisfaction and can save you money in estate...

Financial Plan square
Don’t Let Emotions Get in the Way of Your Financial Plan
Wealth Management04/03/2024

Taylor Tepper, a financial journalist for Forbes, writes that when the vast majority of us try to trade stocks for short term gain, we do a horrible job. "We sell them when we should buy," he says,...

60 40 allocation square
Three Reasons Why the 60/40 Allocation can be a Good Starting Point
Wealth Management03/13/2024

Many people have the misconception that the primary goal of investing is to make as much money as you can as fast as you can. Unfortunately, you can't just order up outsized returns like a delivery...