Owning and managing real estate can be a lot of work, and if you’re like most property owners, you want to see a profit from all of your labor. The good news is, you can make a profit in the short term with your property, with an even larger financial payoff years down the road. These pointers will show you why real estate is a good investment, offering returns quickly and over the long term.
If you’re interested in rental property as a source of income, keep a few things in mind. Your gross annual profit will be your monthly rent times 12. Easy enough, right? If your gross profit is greater than your mortgage payments for the year, you’re off to a good start. However, you also need to plan for additional expenses to avoid ugly surprises at the end of the year.
Budget for these expenses, beyond your mortgage:
- Maintenance and repairs
- Property management services
- Rent payment delinquency
- Taxes and insurance
It’s not uncommon to realize only a small cash profit the first year or two renting your own property. In fact, it’s often seen as a success just to break even the first few years. Whether you’re breaking even or seeing profit right away, you’re still getting these benefits early on:
- You still benefit from the tax breaks associated with owning property
- Your property value is likely increasing
- Your tenants are paying down your mortgage
Medium-Term Cash Flow
In addition to all of this, your prospects for increasing your monthly cash flow in the medium term look bright. Why? Your mortgage payment will likely stay basically the same for the duration of its term, but you’ll be able to raise the rent you charge as the rental market increases year over year.
Traditionally, housing has been one of the strongest long-term investments an investor can make. A decade after the Great Recession of 2008, which produced one of the most painful hits to housing values in U.S. history, the housing sector, with a few exceptions, is doing great. That means there are likely property investment opportunities in your area that you can take advantage of.
A distressed home in a hot neighborhood can be a great investment. If you have the up-front capital for improvements, finding a bargain-priced property in a desirable neighborhood can set you up for significant property value increases in the years to come. And, in the short term, you’ll be able to set the rent at a rate comparable to the neighborhood, giving you extra profit beyond the expenses required to manage the property on a monthly basis.
Real Estate Can Help Fight Inflation
If you want to grow your wealth faster than the rate of inflation, real estate is a good investment. Real estate can help you fight inflation in three ways. The first way is simple enough: an appropriately priced, occupied rental property will generate monthly income that results in extra cash in your bank account.
Secondly, property values have historically appreciated in value faster than the rate of inflation – another reason why real estate is a good investment.
That, coupled with the fact that the real value of your monthly mortgage payment will actually decrease from year to year, means the value of your property grows while your financial obligations shrink.
Thinking about real estate as a way to earn extra income and invest for the future?
Let Greyhaven help you make money as a real estate investor in Chattanooga. We’re experienced property managers who can help you get the most out of your investment. Contact us today!