As with any investment, part of planning is knowing how long you are going to keep it. If you plan on keeping a property for 20 years, chances are you’re going to have to replace the roof, water heater and other items with a limited lifespan. If you plan on keeping the property for only 5 years, then you’ll want to avoid those costly items if possible. Or, at least take them into account with your costs and purchase price.
Remember, real estate is a long term investment. Make sure that you are financially prepared before you start out. You’ll have plenty of time to ride out the swings in the market and hopefully a nice supplement to your income if you think long term.
The shorter the period you own the property, the higher the investment risk will be. Your rental will most certainly appreciate over a 20 year period. After only 5 years, there is a chance it could lose value. Especially if you purchased during a hot inflated seller’s market. Remember, you really make your money when you buy the property, not when you sell it. If you paid too much in the beginning, it is going to be hard to recoup those costs later.
If you are looking for a shorter term, you will want to look for a larger potential annual return to help make up the difference. We’ll talk about the numbers in our next section.
For many small investors, long term ownership makes the most sense. Income producing properties can be a great supplement to your retirement income, but you shouldn’t count on it to replace other investments.
Keep reading to determine if a property is a good investment financially. Or, call me and I’ll help you figure out the numbers.
Jen Hudson, GRI (360) 652-1200 or jen@hudsoncreg.com