At a time when stock investments are uncertain and many homes are not selling, some retirees and near-retirees are putting their money into rental property. That’s a good way to secure a second income. With multiple properties, it’s a tried-and-true path to multiple income streams.
With property values in our area at record lows, 2009 looks like a fabulous year to invest in rental real estate.
Many these days have no pensions or have seen the 401ks they counted on for retirement hammered by the Great Stock Market Plunge of 2008. Real estate can be a wonderful asset to have in retirement, because when you have tenants, you have money coming in every month, and, if you don’t have pensions, that’s important.
Of course, not everyone is cut out to be a landlord, and investing in real estate carries risks just like any other investment.
First, the good side…what’s good about real estate investments?
• Generates cash flow each month
• Income tax advantages
• Income rises with inflation
• Potential of capital appreciation or rise in equity
• Monthly expenses largely stable
• Leveraged investment
And the very best thing about real estate investments? The tenants pay your mortgage, your taxes and expenses while you collect the equity when you sell.
But, there are also risks...what’s the downside of real estate investing?
• Fluctuating maintenance expenses
• Potential for vacancy
• Dealing with problem tenants
• Cash flow not guaranteed
• Poor liquidity
These are serious problems, but, while they can’t be eliminated entirely, they can be minimized.
How to Minimize the Downside
First, buy in a place where there’s a strong demand for housing. Southern California is a primo area though some areas, of course, are more desireable than others. If you are buying single family homes or family apartment buildings, look to the better school districts. Good school districts guarantee a steady stream of families to rent your properties.
Next to location, the price is of utmost concern. Until recently, most of southern California was off the radar for new landlords. The reason? The high prices made it almost impossible to generate cash flow. That situation has now changed as prices have dropped substantially and interest rates, already in the 5% range, are expected soon to go lower. If you’ve ever wanted to buy investment property, now is the time.
If you are just getting into investing, now that you’ve decided on the area, what type of rental do you want? Typically, a first investment would be a single family home or a condo. These days condos especially are super-abundant on the market at fantastically low prices. And, usually condos make great rentals because the exterior is maintained by the home owner’s association, thus cutting down maintenance expenses to very little. If you intend to do the maintenance yourself, make sure you live close by.