You may be interested in buying an investment property if you want to diversify your portfolio holdings beyond stocks and bonds. While stories of quick flips—buying a home, renovating it, and reselling at a much higher price—dominate TV reality shows, renting is the true core of real estate investing. That’s because historically there has been very little real price appreciation in houses. Renting generates a steady monthly paycheck, like a classic dividend-paying utility stock. Any price appreciation is a bonus.
Investing in a rental home isn’t like buying a low-cost index fund. Choosing the right property, maintaining it, dealing with tenants—all that takes work. Think hard about whether you’re prepared to put in the time. Can you handle after-hours calls? What if your tenant doesn’t pay rent? Are you financially prepared to handle unexpected repairs to the property?
Even though home prices have bounced back, deals can be found—if you’re careful. Underestimating the costs of renovation and ongoing maintenance, the biggest rookie mistake, can quickly tank your returns.
Before you take the plunge, do your homework. Investor website BiggerPockets offers a helpful (and free) guide for first-timers here.