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In this highlight, we discuss when it makes sense to own a rental property and go over some of the common mistakes we see happen.
Investing in residential real estate can be a great way to build wealth and create passive income. However, there are a number of blind spots that new investors should be aware of in order to avoid costly mistakes. In this post, we’ll explore the top blind spots of residential real estate and discuss things to look out for when owning a rental property.
One of the biggest blind spots when it comes to residential real estate is starting too soon. On paper, owning a rental property sounds like a fantastic idea: buy a house, get a mortgage, and charge enough rent to cover the mortgage while building equity in the property. However, this strategy doesn’t always work out. If you try to get into the rental property market too early, you may find yourself in a world of hurt if things don’t go as planned. For example, interest rates may rise, making it difficult to sell the property or make ends meet.
To avoid this blind spot, it’s important to make sure that you are at the appropriate stage of your financial journey. Ideally, you should be working through step seven of your Financial Order of Operations before investing in residential real estate. This will give you the deep pockets you need to weather any unexpected financial storms that may come your way.
Another consideration when investing in residential real estate is whether to focus on commercial or residential properties. While owning a residential rental property can be a great way to build wealth, it’s important to have the deep pockets to handle any unexpected challenges. Commercial real estate, on the other hand, may provide a more stable and predictable income stream, but it also comes with its own set of challenges.
If you’re handy and have the skills to fix things around the house, owning a rental property may be a great way to build wealth. However, it’s important to be mindful of the location of the property. Properties that are located far away from your home may require frequent trips, which can be a hassle and can take a toll on your time and energy.
Finally, it’s important to be mindful of the overall state of the real estate market. During a downturn, rental properties may become difficult to rent, and you may find yourself facing a significant financial burden. To mitigate this risk, it’s important to have a well-diversified portfolio and the financial resources to weather any storms that may come your way.
In conclusion, owning a rental property can be a great way to build wealth and create passive income. However, it’s important to be aware of the blind spots and to make sure that you are in a strong financial position before making the leap. By avoiding these common pitfalls, you can increase your chances of success and build a strong and sustainable real estate portfolio.
To learn more, check out our Financial Order of Operations course.
