For some, investing in the housing market has been a more attractive option than the stock market. The money is more tangible, as you can see where it’s coming from, a.k.a. your tenants. Should everything work out smoothly, this setup can increase your wealth and allow for greater ventures.
However, before you dive into the housing market, it’s important to understand both the benefits and risks of investing.
Consideration to Make When Investing in Housing
Plan for an Empty Nest
In an ideal world, you would always have a tenant, and therefore, your monthly costs would be covered. However, that is not a scenario you should bank on.
Realistically, you should have a financial plan ready to go for when you have to cover a month (or more) of the mortgage while your property sits empty. If the property you take on has too steep of a mortgage, then you- and your credit line- will be on the hook.
Having a rental property must come with the expectation that your tenants will one day leave. While it would be nice to have another renter lined up right away, that can’t be the assumption going into this investment.
Start Small
Starting small doesn’t necessarily refer to the size of the property, though it may be nice to start with a single renter while you dip your toes in the water. Rather, it refers to the cost of the mortgage.
This builds off the previous point. The smaller the property, the smaller the mortgage. Be realistic in your first house investment and be aware of your financial limitations.
Additionally, older buildings come with more issues. While perhaps less expensive to purchase, be prepared to invest in renovations. These renovations can be reflected in the rent and be an additional investment, but be sure your finances line up.
Be Prepared for Unexpected Costs
Just like any other home, the kitchen appliances or flooring is bound to see some wear and tear. However, you cater to your renters, and therefore, you are on the hook for replacement costs. Be sure to have some money put aside for when such a day happens.
Enjoy the Passive Money
Of course, it’s important to consider the financial risks when investing in a house- that’s smart thinking. However, it’s more than okay to look at the benefits as well.
Aside from the upkeep and initial investment, this is passive money. This means that you can continue to work your everyday job, all while still making money on the side.
Take the time to learn where your money will go when investmenting in housing and don’t feel any pressure to jump in at a given time. Ultimately, the decision is yours!
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