With residential real estate continuing to enjoy value growth and stronger renter demand, inquiries about purchasing an investment property are increasing.
Renewed interest in being a landlord will likely stem from the prospect of mortgage rates falling in the short to medium-term, coupled with record levels of rent: a trend that we’ve seen in many US cities.
While rents are now showing the first signs of cooling after a runaway 12 months, both professional and mom-and-pop investors are still seeing medium to long-term upsides for property.
This comes despite realtor.com registering a third consecutive month of rental price falls as supply begins to increase.
Anyone considering beginning or starting a property portfolio should seek professional financial advice. However, these are some of the basic factors you should consider.
Profit sources
You achieve a return on your investment through the rising value of the property and rental income.
Big pluses
Passive income, stable cash flow, tax advantages and the ability to leverage your real estate asset to access additional funds are major benefits of property investment.
The leverage
The ability to leverage the asset is important if you want to build a strong portfolio. A property is a tangible asset you can use as collateral, especially if it’s valued at more than you paid for it, or you’ve built up equity by paying off the principal of the loan.
Long-term strategy
As you pay down the loan on your investment property, you build equity. This increase in your wealth can be leveraged to purchase additional properties for your portfolio. Executed smartly, this is a virtuous circle that will see you continually increase cash flow, build more wealth and make additional investments.
Always diversify
Resist the temptation of buying the same class of property, such as a house or an apartment, in the same city or neighborhood. It only takes a local economic disaster, such as a factory or warehouse closure, for tenants to leave and rent values to plummet.
Liquidity crunch
Buying property is a great investment, but it squeezes your liquidity. It’s easy to buy and sell stocks and bonds quickly, but offloading a home is a slower process.
NOTE: The information in this article is general in nature and provided as an overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.