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Investing In Rental Properties

Many people may have looked to the idea of investing in rental properties to create wealth over time. Let me first say that I'm am a real estate investor and I think that it is a terrific way to create wealth. I'm writing the information in this article because I have read many books on the subject and seen many infomercials. All the sources of knowledge that I've looked into have always emphasized the positive and made investing in real estate sound like something that was a guarantee.

Through my 11 years experience in buying rental houses and being a landlord I wanted to give some realistic details that you are never told in the get rich books that you may have read.

The Pitfalls Not mentioned in books and infomercials

So What Can Go So Wrong?

Ok so you've purchased a rental house, have it rented, and you have a nice positive cash flow of $200.00 per month. Here are things that can quickly eat away at that positive cash flow:

Your property tax could jump way up in just one year alone. In my case, my property tax went up 18% in one year!
How did this happen? The largest employer in the town, IBM, had a major layoff in 1993 and 1994. IBM completely emptied out of a 1 million square foot building in Endicott and the taxpayers had to pick up the difference. So it was not a bad choice on my part. The house is a nice rental property, but changing economic times caused a recession and a massive layoff at the largest employer in the county.
Your house could go down in value!
All the real estate books written in the 1970s and 1980s made it sound like real estate can only go up in value. We all now know that not only real estate but the stock market as well can drop in value. In my case, the same recession and layoffs caused a massive home sell off and my rental house dropped one third in value. Ouch!
Sometimes it's hard to collect rent.
In bad economic times if your tenant loses their job, you probably will receive some rent late and sometimes have to evict the tenant.

There Are Still Benefits of Owning Rental Property

Having listed the many bad things that can happen with rental properties, there are still many benefits. You still get some great tax incentives since you can write off the interest on your mortgage payments. Essentially, someone else, your tenant is helping you pay off your property. In my case, I held firm to getting the property on a 15 year mortgage so even though the property dropped in value, I was building equity fast.

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