Investment properties can provide a road to early retirement. Imagine this scenario: A married couple begins investing in real estate properties for the purpose of renting them out once they’re in their late 30’s. Each home they rent out brings in between $500 and $700 net profit per month. By the time the couple hits age 45, they own several rental properties and makes close to $3,000 per month after expenses from their rental income. Rather than spending this money, the couple then turns around and reinvests it into a number of other low-yield and high-yield investments. With this kind of extra money coming in and being reinvested each month, these two people are certain that they will be able to retire completely before the age of 55.
What to Think About Before Investing in Real Estate
The scenario above sounds like a dream-come-true, right? While a sound property investment strategy can definitely help you retire early, there are certainly risks involved. And, if these risks are not negotiated sensibly, you may find yourself in difficult financial straits.
In order to negotiate your risks sensibly, it is important to know the answers to some common questions about property investment.
These questions include:
1. If something goes wrong with the property, will you have the extra cash to fix it?
Even after a careful inspection of a home, your first tenant might alert you to problems that you weren't aware of. What if, for example, the roof begins to leak? Replacing the roof could easily set you back thousands of dollars. Before buying a rental investment property, make sure that you have the extra money you need to cover unexpected expenses like these.
2. Will you be able to find tenants that will treat your property well?
Making money on a rental property each month depends upon having tenants who are reliable, pay their rent each month and don't damage the property. You should never assume that a rental property will always be filled with the ideal tenants. Just as you need extra cash to cover unexpected problems with the property, you'll also need extra cash to cover the mortgage if the house endures a period of sitting idle and empty on the market.
3. How important is it to balance rental income against capital growth?
Sooner or later, you will probably want to sell your rental property and use what you make to re-invest in another property. While many beginner investors tend to think only about the rental income itself, more experienced investors will consider the appreciation of the home over the long-term.
Make Real Estate Investment a Dream-Come-True, Not a Nightmare
Smart real estate investments can put you on the road to early retirement and provide that extra income you need to enjoy life. On the other hand, hasty investments can easily turn that dream into a nightmare. Balance the risks of investing against the rewards, and be sure to follow the three tips given above before making your first property investment.