Real Estate: Buying a Rental as Your First Investment

Real Estate: Buying a Rental as Your First Investment
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My first property was a rental. I had some money saved, was eager to get on the property ladder, but was also planning to spend my first year after college traveling the world. Buying my own place would have meant keeping it empty for a year, or risking having tenants who would not want to move out when I got back. Over a decade later, looking back, my investment was not perfect. I was in a rush to buy, didn't do my research properly, but the rents financed my travels, and I was able to sell a few years ago for twice the price I had bought the apartment for.

There are several reasons why you should consider buying an investment property as a first investment. First, you are young. Maybe getting started with a first job, probably single. Buying your forever home is likely to be out of your price range, and utopic, considering your job can send you to a new city, your growing family may need one more bedroom, and life will simply evolve during the next decade.

As a young college graduate, I had no idea where I wanted to live. Picking a quiet neighborhood in a good school district would have meant living far away from my friends, the nightlife, and all the other places I usually visited. On the other hand, had I bought a place in a trendy neighborhood, I would probably have grown tired of the noise and traffic five years later. And with the current ups and downs of the property market, having to make a short sale because you want to move out of your first property can result in losing money and having to pay for legal fees and moving expenses.

Buying an investment property on the other hand allows you to keep living your life as a tenant, while you build equity on the rental and receive a rent on top. That rent can cover part of all of your rent, and you have the freedom to live exactly where you want to.

My second property was a place I decided to live in, but I took in roommates to help pay the mortgage. After a while, I relocated abroad and decided to keep renting the place, managing it from the distance. I found a third tenant to occupy what used to be my bedroom. As a result, I considered his rent my allowance to find a place of my own in my new country. Having lived in the property I was now renting was a big plus. I knew the place inside and out, and when tenants had queries about the maintenance, I was able to call a trusted plumber or electrician, or guide them to solve the problem.

I also had a good grasp of the rental market in that town, and knew what I could ask for in terms of rent and quality of tenants. That is a good solution if you are not ready to go full landlord. You also have the option to hire out a property manager to oversee your rental for a fee. The manager will bring in the knowledge you may lack, and save you from a lot of headaches. I did that with the first rental, and it was bliss to receive the rent while I was exploring foreign lands.

Buying a rental as a first property can be a great idea if you are living in an expensive city, where it doesn't make financial sense to buy. You can rent your own place, and buy in a lower cost of living area, where you hard earn cash stretches further, and rental returns are higher. Your hometown, for example, so your family or known professionals can look after your property.

Finally, most house improvement expenses will be tax deductible, as will wear and tear or furnishing.

Common wisdom says you should own your home before considering investing in a rental, but if you crunch the numbers, you may find out going the landlord route can actually make sense.

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