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What is An Income Property

What Is An
Income Property?

An income property refers to a piece of real estate that is purchased or developed

primarily to earn income by renting or leasing it out. Income properties may be either residential or commercial.

Investors must take several factors into consideration—such as interest rates and the housing market environment—before purchasing an income property, as there can be unique risks associated with this kind of investment.

Owners should have a financial cushion to pay for repairs, maintenance, and other costs such as property taxes in case of emergency. Although they may generate income, owners should consider the risks including interest rates, housing market conditions, and disruptive tenants to name a few.

Understanding Income Properties

Income properties can be a worthwhile investment for a variety of reasons. It offers an alternative to standard market investments. It also offers the investor the security of real property.

As mentioned above, income properties can be

  • Single-family homes
  • Multi-family homes
  • Studio apartments
  • Apartment buildings
  • Commercial real estate
  • House flipping
  • Office Buildings
  • Retail space
  • Hotels 
  • Mobile homes
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Advantages and Disadvantages of Income Properties

Just like any other investment, there are distinct benefits and pitfalls to owning income properties. As mentioned above, they are great investment opportunities that can provide diversity to someone's portfolio.This helps spread the risk across different investment vehicles. Investors are also able to generate income, providing security and savings for their retirement.

But owning an income property requires time, effort, money, and patience. For instance, dealing with tenants can be difficult at times. This can lead to additional repairs, trips to the home, and court costs if the owner needs to pursue an eviction. Furthermore, if the owner can't manage the property themselves, they may have to spend additional money to hire a property management company to do the work for them, however all of this can be factored into the numbers when doing your due diligence.

A great place to start is: 

  • Identify areas in your market where there is a demand for a residential commercial rental market.

  • Find motivated sellers using marketing and advertising.

  • Buy cosmetically distressed properties at a deep discount.

  • Fix the properties to the level that attracts your target market.

  • List properties to your targeted market.

The rule of 72 is a great rule to use to show you what your Return on Investment (ROI) would be. The rule states if you divide 72 by the interest rate, the result will be the number of years it would take to double your money.

For example, a $50,000 investment earning a rate of 10% yearly would take you 7.2 years to double to $100,000.

In conclusion, rental properties can generate income,

but the return on investment does not typically happen right away. Rental property investments are also risky because of how many variables can affect their performance, So, if you are wondering if you should invest in real estate, really consider how appropriate this type of investment would be for you and your situation first.

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As with any investment, rental properties should be viewed as a long-term investment, not an instant source of income. If your goal is to grow wealth, long term rentals are a wonderful way to do so. Continue learning with Legacy’s Building Wealth Club to pursue your financial goals with income properties.

Join Legacy’s Building Wealth Club today and continue your journey. Let our education and experience lead the way!

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