Using Rental Homes to Gain Long-Term Wealth

ethangregory Real Estate Leave a Comment

Have you ever considered purchasing a single family home and renting it out?

Like many people out there you are not alone. Rental homes are a fantastic way to grow your wealth with a tangible asset versus placing your money in the stock market. Unlike stock market investing homes tend to have a more steady growth in value. In the northeast Florida area homes have historically appreciated at 4% annually. Couple that with the rental income and you can see the wealth growth possibilities that rental homes offer.

When searching for investment properties it is important to remember the old adage that you make your money when you buy. You’ll need to select homes that provide a strong rental income that covers the expenses and any mortgage payments. This amount can depend on whether you pay cash for the homes, manage the properties yourself, make repairs yourself etc. From there it comes down to your comfort level with each individual home and area. You can spend a little more for a nicer area or larger home. Though this will likely mean less of a return on your investment due to the cost. Or, you can choose to select a riskier area at lower prices that produce a higher return. Either way, you’ll need to find a qualified Realtor to aid you in searching for the areas that fit your investment criteria.

Some common pitfalls that I see many investors fall into with rental homes are:

  1. Underestimating expenses – This can be either on the number of repairs needed at the purchase or failing to budget for ongoing repairs over the years.
  2. Self-managing – Not everyone is cut out to be a property manager. Consider first if you have the time or expertise to manage a property and tenants before deciding to manage the home yourself.
  3. Over-leveraging – Be careful when obtaining a mortgage for your investment property that you are putting enough down to cover the mortgage and expenses with the rental income. Also, beware of using your rental home as an ATM and pulling equity out in a refinance when you have owned it for a few years.

Work with a Realtor that knows the area and how to assess investment properties when you start your search. Great investments are always done with a great team. Start your team off with a professional Realtor to help grow your wealth with investment rental homes.

Happy house hunting!

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ethangregory