Even with Austin housing prices holding steady at higher than pre-pandemic rates, investing in a rental property can still be a good long-term strategy. Whether you’re new to real estate investing or this is not your first investment rodeo, it’s important to weigh the pros and cons of growing your property portfolio.

PROS

Forced savings account

Having a mortgage that someone else is paying for you is kind of like having a forced savings account. Your tenant is paying into your account and consequently paying down the debt while the asset is appreciating in value, and typically at a much higher rate than an average savings account.

Someone else can manage it

Property management companies will manage almost all the work of owning a rental property like finding tenants, collecting payments, facilitating inspections and maintenance and repair call outs. They collect a small fee per month, usually around 10-20% of the rent, and send you a monthly/yearly statements.

Passive income

Ideally, the rent payment that you receive will be higher than your mortgage and tax payments every month. That extra income either becomes extra cash flow to you for relatively low effort, or you can take that money and pay off your mortgage faster. Once that mortgage is paid off, your passive income is yours to do what you want. Like, invest in another property?

Income gradually increases

If you have a fixed-rate mortgage or, even better, no mortgage at all, and you can increase your rent at the same or faster rate than inflation, your income will also gradually increase. 

Building generational wealth

Investing in one property is great, but if you can leverage that property and/or invest in multiple properties at once (with a smaller down payment but bigger payoffs down the road), you’re building not just wealth for yourself but also creating a nest egg for future generations that will inherit your investments.

These properties, when selected in the right areas and sparing some crazy disaster, will only increase in value as the years go by, increasing your monthly income.

You have a level of control over your real estate investment

Unlike shares or bonds where the income can increase or decrease without your control, real estate investors can participate in the investment process and have more control over how much they earn. Searching for good real estate deals, negotiating on price, finding good tenants and deciding when to sell are all things that the investor can control. 

CONS

Managing the property yourself can be time consuming

Once you have a rental home, you have to decide whether you are going to manage it yourself or hire a property management company to handle everything. Small maintenance repairs can add up both in time and money (although ideally the income should still cover your expenses). Managing it yourself depends on a few important factors like how far away it is, whether it is a short- or long-term rental, and whether you have the physical time and resources to handle it.

Hiring a property management company might be worth the money if you’re not handy or the time it’s consuming is taking you away from other responsibilities, but of course that will decrease your monthly income.

Residential property taxes

Property taxes vary year to year with little to no warning. This can significantly impact your predictable income stream if there is a huge spike (like during a pandemic). Your primary residence may qualify for a homestead exemption to protect you from this, but there's no visible limit when it comes to rental property tax increases. You can, however, protest the tax rate and often get it reduced. We hired a local company to help us with this and it was worth every penny.

Unexpected emergencies

While most of the time your rental property will chug along happily without much effort, sudden expenses like a flooded house, broken air conditioners, or storm damage can catch you by surprise if you’re not prepared. It’s important to have a savings account with enough cash to cover the initial blow before any potential insurance payments. Without a buffer or a good insurance plan, you might be caught off guard in these situations and it can create substantial setbacks. Having that emergency plan ahead of time, however, will turn emergencies into minor inconveniences that you can handle.

So is real estate investing worth it?

Short answer: absolutely. Real estate investing doesn't have to be daunting. Owning an asset that appreciates in value while someone else pays it off is a proven strategy in building wealth.

Like anything else in life, it’s important to know what you’re getting yourself into so that there are no surprises, but with the help of an experienced Realtor, you can make decisions with confidence and watch your investments grow. 

Contact David for more information on how to grow your portfolio, or with any Austin real estate questions.