All investments have their upsides and downsides, and real estate isn’t much different. However, it can be a solid investment vehicle for anyone who enjoys the diverse field of residential property as an active or passive owner. It’s one of the few ways to generate income to offset its overhead while growing a financial portfolio.
Owning multiple properties increases your passive income stream and net worth, but like all investments, it has its pros and cons.
Pros of Owning Multiple Rental Properties
- Property is tangible. Compared to other types of investments, it’s easier to use leverage to grow your money with real estate, even though lenders now require 20 percent down for investment properties.
- Property insurance covers losses in part or full due to accidents, fires, or some types of losses due to damage.
- It has a good track record. With the exception of the real estate meltdown in the mid-2000s that occurred in regions of aggressive speculation and overbuilding, property has shown solid appreciation in the last decade.
- Rental properties generate cash flow. Increasing the number of properties you own as rentals provides a larger income stream and increases net worth at the same time.
- Property management companies can assume the day-to-day responsibilities for multiple investment properties. They’ll help you acquire and manage them, and since they’re locally-based, know the best times to sell for maximum profitability.
Cons of Owning Multiple Rental Properties
- It’s not a liquid asset. It may take weeks or months to sell a property.
- Keeping track of and executing the repairs and maintenance takes time and money, as does finding a trusted contractor to do the work.
Owning Multiple Rental Properties Using Turnkey Management Companies
Thanks to the Internet and professional property management companies, owning rental properties has never been easier and with lower risk levels. Turnkey property management companies help investors select properties based on their short and long term income-generating potential and carefully prequalify prospective tenants. Location analysis and tenant screening are key to finding and keeping financially rewarding properties.
Without the help of knowledgeable, local professionals, it’s more challenging to find rental properties in locations that have solid potential for both appreciation and income growth. The Internet has made doing the acquisition research much simpler and faster, but nothing can take the place of local experience and first-hand knowledge when it comes to buying individual properties and finding prospective tenants.
Local experts know their markets and what people want and need from a rental property. They will make sure that a property gets the improvements it needs and include the discretionary upgrades that give it market appeal for renters based on their knowledge of local requirements and preferences.
The burden of managing multiple properties falls squarely on the turnkey management company. While you’ll have full control over decisions about the property, you won’t need to find local contractors to complete necessary maintenance and repairs for the rental units.
These groups also bring their expertise and professional experience for finding suitable tenants. They’re also local, making it possible for investors owning rental properties in distant locations and be able to monitor the property’s condition remotely. While there are many forces that drive the success of rental properties as investment vehicles, finding solid and stable tenants is key.
The Bottom Line
Owning rental properties (especially multiple rental properties) offers a tangible road to wealth creation. This is especially true when you partner with professionals who take care of the day-to-day, local issues associated with rental properties. It could be one of the most interesting—and profitable—ways for you to build a portfolio that performs on your behalf.