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"Rental Properties are the Best Long Term Investment"


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There's no debating that real estate has always been one of the best long term investments you can make - which is why it's a great way to help save for retirement, college, or whatever long-term goal you may have.

No matter what type of investment property you want, a long term investment strategy clearly beats a short term approach in today's market.


WHY A LONG TERM INVESTMENT PLAN WINS


So why, you ask, is rental property investing one of the best long term investments, as opposed to being one of the best short term investments? There are many reasons, but the 3 primary ones are:

  • A long term investment strategy is much less risky because it eliminates an over-reliance on price appreciation.
  • A long term investment strategy allows more time for your asset to appreciate, thus maximizing your profit when you sell.
  • A long term investment strategy allows more time for you to accumulate equity (free equity via your tenant's rent payments, as well as your incremental monthly principal payments), thus maximizing your profit when you sell.

The last 2 reasons for why I believe investment properties represent one of the best long term investments you can make are self-explanatory, so let's focus on the first one.


SHORT TERM TIMELINE = HIGH RISK PROPOSITION


Short term strategies were certainly viable in the early part of this decade, when price appreciation was quick and irrational. But unfortunately, the "good old days" are gone and will not return anytime soon.




If you are looking to flip a property and expect to recover your costs when you sell, much less make a profit, the property must appreciate at a decent clip in a very short period of time. Some examples of the costs you’ll need to recover include:

  • Selling expenses (which usually average about 6.2% of the sale price after everything is factored in). For a $200K property, that’s over $12K right there.
  • Acquisition expenses (from when you first purchased the property). These include the property appraisal, title work, and HUD-1 closing costs. These will typically total a few thousand dollars.
  • Carrying costs. Things like mortgage payments, utility, rental property tax and building insurance expenses will cost around $1,200-$1,500 per month until you sell.

So for the sake of argument, let's say that selling a rental property after holding it for 3 months will generate roughly $20K in costs that you'll want to recover before any profit goes into your pocket. Without rapid price appreciation – or your substantial "sweat equity" contribution in the case of fixer uppers – you'll have trouble recovering these costs in the short term, much less making a profit.

The bottom line is that in today's market, banking on quick price appreciation to make a profit is risky business. So unless you're Tom Cruise, the best investment property advice I can give you is to adopt a long term investment strategy.

Rental properties are simply one of the best long term investments in today's world, especially for those just starting out. But if you are looking for something that is more of a quick-hitter, you're definitely barking up the wrong tree!


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2 Responses to Rental Properties are the Best Long Term Investment

  1. viral1985 says:

    I agree that long term strategies are best for any kind of investment property, but I also think short term methods like flipping have their place. In fact, I have made quite a good living flipping houses during both good times and bad. The key thing is, that you must be smart about it. Do your homework, negotiate, and work hard. Both short and long term investment stratgies definately have merit.

  2. gigi says:

    Couldn’t agree more. I think new investors ought to focus on long term tactics, and only consider the short term / risker stuff later once you’ve sort of leanred the ropes. A long term investment strategy is less risky by default, and therefore this makes a good entry point for newbie investors.

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