The Long-Term Benefits of Investing in Residential Rental Property
Investing in real estate is a good long-term financial strategy if it is purchased in the right area. While there are certainly highs and lows in any real estate market, the purchase of most real estate property in a good area does allow people to see a sizable return on their investment.
Residential Income Investment Property
There are many different types of real estate that people like to purchase for investment. One of the better choices is residential rental properties. That is because it creates a situation where the property owner has the ability to have some or almost all of the expenses including the mortgage paid by the tenant. In a break even or positive cash flow stance, monthly rental payments on the property offset maintenance and mortgage expenses while the value continues to grow. This is the perfect type of financial investment for a long-term investor.
If the investor has a little extra income from the property each month, it can be used to pay off the mortgage sooner than the traditional 25-30-year mortgage. This will make it become an even better investment. With a little extra payment each month towards the principle, property owners can reduce their mortgage repayment by almost half. This will save a significant amount of money in interest payments to the bank.
Once the investment property is paid off, then the income the property generates switches from a property that simply appreciates in value to a property with a long-term income potential for the owner. In many cases, residential rental property income becomes a good retirement supplemental income. In other cases, it may become the primary retirement income if the real estate investment was well made.
Deciding to Sell or Keep Residential Investment Property
In some traditional real estate investor circles, where they create Real Estate LLCs , the theory of old was to buy a property and wait until it appreciates to a good value and sell it. However, in many cases, there is a greater advantage in keeping a rental property long term.
Because rent rarely goes down, the long-term projections for many real estate residential rental property is usually good. This is especially true if the property is purchased in a good area where rents are sustainable. The most important part of any real estate investment is purchasing in the right location, in a good region of a state where there is income sustainability and steady resale value.
Over time, all rental property will usually experience a two-fold increase in value. The first noticeable value increase is through rental increases. This will usually occur several times over a 10-year period. With each increase, the property becomes more self-sufficient and sustainable.
However, it should be noted that overpricing a rental unit can make it less desirable and more prone to vacancies with less than stellar tenants. It is always wisest to give good tenants a good rental rate with modest increases. This will keep the tenants happy and will often help keep them on a long-term basis.
The Importance of Maintenance and Upkeep
It is always important to continually maintain a residential rental property through proper maintenance. This protects the value of the property and keeps tenants happy. Property that has a poor maintenance record will lose a significant amount of appreciation at the resale. Additionally, it can lead to high tenant turnover and vacancies. Additionally, proper maintenance and upkeep will assure that there is less liability against possible injury or damage to a person or property.
Vacancies that last for any significant amount of time can be quite costly. If the maintenance project costs $1,000 in repairs, some landlords balk at the price tag and decide not to invest in the repair for an extended period of time. This can cause the loss of a tenant. If the tenant was paying $600 dollars per month, this can be a very unwise decision, especially if the unit remains vacant for 2 months or more.
Deferred maintenance can also cause other problems long term. If a repair is left unattended, it may result in the property needing more extensive repairs once the landlord decides to make the investment to do the repair. This could occur because the problem only became more complicated or advanced. This might be notable in a furnace, electrical, plumbing, or roof repair.
Rachel Slifka is a freelance writer and human resources professional. She is passionate about helping fellow millennials find success with their finances and careers. Read more by checking out her website at RachelSlifka.com.