Ahttp://whidbeyawaits.com/2018/05/03/five-reasons-invest-rental-properties-whidbey-island few years ago, investing in rental properties was a no brainer. With a mere 10% down, one could expect the rent received to match the mortgage payment, sometimes even with some positive cash flow. With starter homes now almost never under $250,000 on Whidbey can it still be a good idea? With Island County estimating we are short 3000 rental units for our current population needing affordable housing, it is definitely something to look into.
Of course, as with all investments, it depends! Here I just want to bring up a few benefits to consider.
- So my number one reason to invest in Rental Properties is that people need them. If you get the most affordable and versatile homes and make them available, they will be occupied. To me, this is doing good work in the world, providing shelter for the neighbors in our community.
- Return on Investment is my number two reason. In today’s market you may have to invest 20% or more to get an even or positive cash flow, but there are long term benefits. With appreciation over the long haul, you can expect a good return on that 20% down payment; we call that Leverage. To get 5% return in the stock market on $50,000, you have to invest $50,000. To get 5% return on $250,000 in real estate you need only invest $50,000- give or take.
- Ability to build Equity- You are able to build equity in Real Estate in at least 3 ways. First, through appreciation over time; though there are occasional dips and corrections, over the long haul, one can expect steady appreciation in value if the property is maintained and the area stays healthy. Second, the renters are paying your mortgage down so you can build equity just by owing less on it. Third you can build (sweat) equity by making lasting, strategic improvements on the property, for example adding a more energy efficient heat system, a lifetime metal roof, opening up a view or just opening up for more sun and sky, creating better landscaping, parking, storage, etc.
- Investing in Something Real- We are all encouraged to DIVERSIFY our investments, and I do. But the money I have in retirement mutual funds, I confess, are so nebulous and uncertain to me. Even though I have asked our financial planner to divest us from the “Evil Empire”, I fear some of those funds may secretly still be doing evil things in the world like polluting the planet or what have you; whereas a home with a people living in it is REAL. I can drive by and see it, paint it and plant around it. I can insure it and plan my future around that asset bringing me monthly income or a lump sum when we don’t feel like maintaining it anymore.
- Building Relationships in your community is an often unforeseen advantage to Real Estate investing. If you have a rental home in your community, create a MIL unit in your daylight basement or have acreage and build a guest home on it to provide housing for a neighbor of your choosing; the relationships that can build over time can be a real blessing. I speak from experience, often a trip to town brings me in contact with a former tenant and current friend.
Is investing in Rental Properties for everyone? Not by a long shot! There are set backs and frustrations, they can take time, energy and money right when you don’t have those to spare, they require an ability to get a loan, home maintenance skills or ability to delegate is helpful.
I am happy to help you weigh these pros and cons and you consider diversifying your portfolio with an eye to the future.