Are Rental Properties Good Investments?

Q. Are rental properties good investments?

A. It's hard to say a specific investment is good or bad without the context of the investor's objectives and timelines.  Below we will do a quick review a rental property's pros and cons, you will be the judge if it fits your objectives and timelines or not.

Major Pros of Rental Properties as Investments

• Steady rental income (assume you could find a good tenant and the rental property doesn't require big maintenance expenses)
• Tax benefits (interest expenses could offset rental incomes, depreciation of the property typically leads to paper loss which could reduce your tax liabilities)
• Not as volatile as the stock market (this is for the long term, although in the short term, if you happen to buy the rental property at the peak time with little down payment, your equity could be wiped out easily)

Major Cons of Rental Properties as Investments

• Poor liquidity (if you need access to capital quickly, rental property is not such a good source)
• Not spectacular returns (historically, real estate's return is not as high as stocks, this is especially true if you buy the rental property with cash.  What if you use leverage?  You can run our real estate investment return calculator to find out more details about your rental property's return)
• It's a job (managing a renal property is like finding yourself a part time job, too many small landlords get burned due to bad tenants and the nasty court process ensued)

We have introduced 3 ways to quantitatively evaluate a renal property's potential returns, check them out.