Rentals
Rental properties-Cash flow or appreciation?
There are many out there touting the purchase of Real Estate for rentals. Why not have the renter pay your mortgage, and in 30 years, you have pure cash flow! And month to month, if your rent income is greater than your expenses, monthly cash flow!
Sounds good, doesn’t it. But there are things to consider.
Buying rental properties for cash flow makes sense in a vacuum, but you need to make sure you understand that this long term strategy can have short term challenges.
Things to consider are vacancies. Every month you do not have a renter, is lost cash flow. If you are making $200 dollars a month positive cash flow, and the mortgage is $600 dollars a month, it would take 3 months to make up for a one month vacancy. Depending on your market, once a property is vacant, it typically needs to get cleaned up and remarketed. It can take 60-90 days to get re rented.
Other things to consider are maintenance. There are regular maintenance, and the kind that occurs due to negligent tenants. Depending on management of the property, damage can run into the thousands.
What happens when your tenant doesn’t pay their rent? You can’t just throw them out. You need to follow due process, and depending on the state, an eviction can take up to 90 days.
There are the positives, when you have good tenants, the cash flow can be a great addition to your income, and you do have the tax benefits of mortgage interest and depreciation, but make sure you have considered both sides of the investment strategy.
If you are buying in an appreciating market, then dealing with these issues makes sense as the property value increases to offset any expenses. If you are in a flat market, make sure that the area has a real need for rentals, and the pool is large to keep your property occupied.
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