The Many Advantages of Rental Properties

March 19, 2007 by David Cowgill

Rental properties — small apartments and single-family homes that you rent out — are good investments because there is always a shortage of housing, and there are always people who can afford to rent but cannot afford to buy a home. Because of the high price of home ownership, and the fact that it is generally undertaken with borrowed funds, there will always be renters, those who are afraid of the financial obligation or unwilling to leverage themselves into ownership.

The main advantage real estate offers is leverage. Using a small amount of money — or even no money, in a few cases — you can buy real estate worth tens or hundreds of thousands of dollars. The second advantage is the price appreciation that occurs in real estate, whether it is through inflation, or fixing up, or just the fact that buyers and sellers are working in an imperfect market, usually with only a hazy knowledge as to the real value of property. This is even truer and absorb show in markets where the job growth is filling every single vacant rental property.

The house that you bought yesterday for $60,000 may be worth $65,000 to another person. Find that person, and you’ve made $5,000. Price is also boosted by the simple law of supply and demand. The supply of housing is growing slowly, and the population is mushrooming, through both the constant flow of immigrants looking for a place to live and our reliance in the old fashion way of enlarging our own families. As long as demand for housing continues to outrun supply prices will keep going up.

Other factors that affect the price of real estate are the general economic condition of the community, the condition of the surrounding neighborhood, the actual condition of the property, the financing terms, the time period involved, owner financing, down payment, and other factors.

Posted: 03/19/07 10:07 PM by David Cowgill | Real Estate Investing | Trackback URI