Is owning a rental property worth the headache?

A: From Linda Day Harrison:

Is owning rental property too much of a headache: real estate question of the week

Linda Day Harrison

Everything we do to build wealth should be analyzed using a cost/benefit analysis from an opportunity cost perspective, not by asking yourself whether the effort will be a headache.

In other words, as I’ve heard it said, you can always buy aspirin! So what is your return on investment for every $1 you invest?

Today we get absolutely nothing on holding our money in bank accounts or certificates of deposit or savings, etc. So based on that, you measure your opportunity cost. If you do not invest that $1, it is lost opportunity to let it just sit and not work for you.

Even a 3 percent return is huge compared to putting your money in the bank, for instance. If you have a business, which is what buying real estate is, you look at your investment in capital, like buying a machine or piece of equipment.

When you buy that equipment you evaluate it based on how much it can generate in revenue. You do not ask yourself how much of a headache it might be?

You do ask yourself, however, how many widgets it can produce, etc.

So buying real estate is a business and if you invest it wisely and know the pitfalls, it is a great alternative investment, and it helps you diversify your portfolio.

When I look at a deal, I ask these four questions:

Will there be positive cash flow from day one?

Can I afford to sustain the investment property if it becomes vacant?

How much will I have to spend to improve it, and will the improvements add value to the property?

Is there demand for this location and property type?

You should always take baby steps when investing in real estate, so you learn with less risk.

Thanks,
Linda

About the author:

Linda Day Harrison founded theBrokerList.com in an effort to create efficiency and streamlined operations for the commercial real estate industry, property and facility management, leasing and brokerage.

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