“Your mutual funds will not call you at 2:00 a.m. to complain that they don’t have heat.” This is the advice that I frequently give to people who are looking to purchase an investment property. While many people recognize the benefits of an income-generating asset, they often underestimate the responsibilities that accompany such an investment.
As a result of best-selling books, seminars and television programs, income properties are becoming increasingly popular among investors. The promise of great profit and minimal work is understandably alluring. However, many people consider such investments based solely on their potential for financial return. Rarely do investors consider the practical implications of owning an investment property.
A client recently said, “If you buy a property, you should also buy a plunger.” Rental income is typically characterized as passive income. However, it is highly unlikely that you will be able to succeed without investing your time with your money. Hiring a manager for a small rental property is not typically feasible. You must be available to personally deal with management issues such as marketing, conducting maintenance and engaging in tenant relations. The call to deal with problems could come at any time; at 2:00 a.m., when you would rather be sleeping, or at 2:00 p.m., while you are working at your job.
Investing in real estate certainly has financial benefits. The property value will likely appreciate and the rental income may generate a positive income stream in excess of your expenses. However, you must budget for major capital expenditures and vacancy. The modest monthly profit may be insufficient to cover the cost of replacing a roof. And don’t forget mortgage payments and heating costs.
– Heather Clarke is a Halifax-based writer with a penchant for pretty things.
