Real estate is an asset that can, under the right conditions, deliver excellent long-term returns from appreciation. But, if you purchase a property with the idea that you’ll make your money on its future appreciation while you absorb short-term losses, you’ll surely achieve the losses and it’s quite possible that you will be disappointed on the appreciation.
Real estate markets rise and fall. If property values are up from your purchase point when you are ready to sell, you come out ahead. If, on the other hand, they are down when you want or need to unload the property, you may end up with little to no return. In fact, taking into consideration seller paid closing costs and commissions, you might even lose money if you sell within the first several years of owning the property.
Single Family Rentals: A Positive Return from Day 1
Buying a single family home in order to rent it is a different story. If you’ve done your due diligence and purchased a property at or below market value in an area with a large pool of renters, a growing population, a strong business climate, etc., you can start capturing a positive return the day your first renter moves in. If you buy a turnkey property with a tenant in place, you’ll remove a lot of the uncertainty and risk, and know what your cash flow will be from day one.
At a minimum, your tenants should be providing enough rent to pay your mortgage and cover operating costs, while you benefit further through depreciation and other tax benefits. And, with a property that has a positive cash flow, if you choose to sell down the road, you can take your time and put the home on the market when conditions are optimal.
So, as you consider your next real estate investment, certainly hope for a strong return in the future, but base your purchase decision on profit in the present!