Investment in Real Estate – What You Should Know
Ever since someone first came up with the idea of owning property and charging for rent, people on both sides have exploited the hell out of this business model. And why wouldn’t they? For property owners, it’s almost free money! For those living on lease, it’s a really cheap way to get a decent place to live that’s not going to break the bank, even if it’s only temporary. I mean, let’s face it, when you’re fresh out of college, crippled by student debt, working a low-paying job and determined not to return to your parents’ place, you’d take pretty much any place you can afford. There’s always a demand for homes on rent (hell, even when the housing market crashed a few years ago, it wasn’t because there was a lack of organic demand, it was because there was so much demand that the overinflated prices artificially reduced it), so it’s safe to say that purchasing a home and living off the rent is a good investment.
But is it worth it for you, personally? There are undoubtedly quite a lot of positive sides to purchasing property and renting it out. The best one is that, like I said earlier, there’s always – always – going to be a demand for homes. People have needed shelter since the dawn of time, and that’s likely not going to change, well, ever. So unless there’s a factor that’s preventing you from capitalizing (issues in the neighborhood or an overinflated rent), you should be receiving a steady stream of revenue every single month if you’re renting a house or an apartment/condo (the exact payment frequency varies for other establishments – concert halls, for example, may only be used once every few months, but the rent for those is significantly higher). And, if push comes to shove and you end up REALLY needing money fast, you can always sell the property and get a lot of your original investment back. If you’re even remotely smart when choosing what property to buy (pro-tip, don’t buy a house next to railroad tracks, it’s cheap for a reason), you should turn in a profit no matter what.
With that said, though, the act of turning a profit is definitely a slow one. You can think of it a little bit as putting money in the bank and then living off the interest. The average rent that most landlords charge is about 1%, which, depending on the details, may sometimes actually be lower than the bank’s interest. On top of that, you’re also going to be responsible for covering any repairs and damages. If the AC you installed breaks, it’s you who’ll have to replace it, with your own money – the deposit can legally only be used to cover damages caused by your clients. So depending on your financial situation at the time, you might need to shell out some potentially crippling sums just to be able to do your obligations. For example, my parents give several apartments for rent throughout the city, and about ten years ago there was an explosion in one of them. One of the tubes responsible for heating leaked, the gas escaped into the walls, and the compression completely blew out two walls, sending debris everywhere. We did a lot of the cleaning and repairs ourselves, so we didn’t have to pay out the full price, but overall it wasn’t a cheap incident, especially since it came so out of nowhere. It’s honestly these unexpected risks which can, potentially, turn you off from being a landlord.
So, is investing in real estate ultimately worth it for you? Honestly, that depends on the size of the investment, and the amount of cash that you have on hand. Let’s say you have a quarter of a million (doesn’t matter if it’s dollars, pounds or euro, just any currency). You can buy four different apartments throughout the city for about 50,000 each, and save 50,000 for emergencies (both related to your apartments and personal ones, such as emergency medical services). The increased number of places you’re giving out for rent means that there’s less of a chance of going completely without income for the month (if one of your tenants leaves, you still have three more and can get through the month while searching for a replacement), but at the same time increases the maintenance you’ll need to deal with. Either way, the final profits following this hypothetical situation, average to about 2000 a month, before taxes. Could you live off that? Is that a comfortable enough sum of money for you? If so, then perhaps investing in real estate might be the way to go.