If you’ve been watching reruns of HGTV’s “Income Property” and wondering if it’s time to buy an investment property and become a landlord, you’re not alone.
Between a recent jump in inflation, historically low interest rates, and the mood of millennials to rent instead of own, buying rental property has been on an uptick in recent years.
In fact, real estate is now Americans’ favorite long-term investment, according to a recent Bankrate study. Real estate investing has consistently ranked as one of the top choices since Bankrate started the survey in 2012.
Should you take the plunge on a rental property? Experts offer a qualified yes, provided you do your homework first. Here are 10 things to consider before diving into an investment property.
1. Determine if buying an investment rental property is right for you
Forget the TV sitcom stereotypes of clueless landlords. To make the most of income property requires an accountant’s eye for detail, a lawyer’s grasp of landlord-tenant laws, a fortune teller’s foresight and, should you choose to manage your rental property yourself, a landlord’s firm-but-friendly disposition.
“Where people who want to become landlords fall short is, they don’t realize how much work goes into it,” says Diana George, founder of DG Design Group.
So before you leap in, you’ll want to consider whether you have the time, willingness and skill to put into managing a rental. While rental property is considered a passive investment, that doesn’t mean you’re fully passive in managing it.
Over the long-term, real estate investments may compare favorably to other long-term investments such as stocks, but the results can vary significantly depending on the circumstances of the region and specific property. You’ll want to consider whether you think you can increase rent payments over time and why the economy surrounding the property would support that, among other issues. Whether or not you finance the property and the terms of any financing can have a significant impact on the return you ultimately earn.
If managing an investment property sounds like too much, but you’re still interested in real estate, you might consider owning a real estate investment trust, or a REIT. REITs are publicly traded securities that invest in real estate and typically pay a large percentage of their earnings back to investors in the form of dividends. This may be a way to get exposure to real estate investing without the hassle of property management.
2. Buy or finance? Analyze which is better for you
While some financial pundits insist you should never buy a rental unless you can pay cash for it, Jeremy Kisner, …….