Should I Buy an Investment Home?

Rental Home

Are you considering purchasing an investment home? This could be a good idea if you want to diversify your portfolio to hold more than simply stocks and bonds. There’s plenty of stories about quick flips—buying a property, doing some renovating, and then reselling at a much higher price—dominating TV reality shows, however, renting has always been the core of real estate investing. This is mainly because in the past homes and properties have appreciated at a much slower pace. Renting can generate steady monthly cashflow much like classic dividend-paying utility stocks. If you see any price appreciation it’s a nice bonus.

Investing in a rental property is much different than buying a low-cost index fund. It takes a lot of work to choose the right property, maintain it, plus deal with tenants. You should think long and hard and be comfortable that you are prepared to put in the time that is required. Are you able to handle after-hours phone calls? What if the tenant doesn’t pay rent?

Many longtime real estate investors say that landlords need to be handy and like to fix things. They also caution would be investors that are already juggling 60-hour jobs and families to be wary. Things may go well with your properties and you may not have too many issues, but that’s the exception to the rule. It’s also suggested for anyone that is considering owning rental homes as a business to make sure they have enough cash on hand to cover unexpected repairs early on before the rent checks start coming in.

Although home prices have been rebounding, you can still find good deals if you’re careful. Underestimating what the costs of renovation will be along with ongoing maintenance, are the biggest rookie mistake that can quickly eat up your returns.

Before taking the plunge and becoming a real estate investor, do your homework. A good investor resource that offers a helpful (and free) guide for first-timers can be found at BiggerPockets.com/real-estate-investing.