Not Rich Yet | Managing higher incomes

TAG | real estate

May/10

25

Under contract!

So we just signed the contract to buy the rental property I mentioned in my post The math behind buying a rental property!

This means we are under contract, but still need to arrange for financing, survive the due diligence by lawyers, underwriters and inspectors and then close on the property.

Mortgage rates are at historical lows currently so it was a good time to strike.

There are several pros and cons of investing in rental real estate that we have been weighing before embarking on this journey.

Pros

  • Good hedge against inflation – when inflation kicks in it will raise rents and property values but my mortgage will stay constant. This way I will have hopefully some protection against inflation of my cash and other inflation sensitive investments
  • My rental income is relatively independent from the volatility of the stock market and allows me to diversify away some more risk
  • It provides a decent return of 8-15% (decent because it is not risk-free compared to cash sitting in a savings account)

Cons

  • Requires active involvement (hey landlord, my toilet is clogged)
  • Not risk free (real estate prices, tenant damages, ability to rent out property 100%)
  • Emotionally taxing (aggravation over tenants)

Next we need to figure out our financing – how much to put down? buy down the mortgage rate with points or not? escrow or not?

I will keep you posted…

Image by NobMouse

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Our featured article: The math behind buying a rental property

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