While buying an investment property is a great way to start a passive income and build wealth for retirement, like investor, Dimitrios Neilas, it’s a capital investment that requires some thought.

An Advantage Can Be a Pitfall

One of the largest appeals to investment properties is the amount of individual control you have over selecting properties, choosing how much to pay on a mortgage, and adding upgrades to reap value. But investment properties aren’t always the easy investment stream you might expect.

Surprises on the Way

While owning a property, expect surprises. You’ll deal with both predictable and unpredictable variations to your income stream. The good news is, you can plan ahead for how predictable costs will affect your net income for the year. These are costs like property tax and insurance, which change some year to year, but not dramatically so in most cases.

Unpredictable surprises include an unexpected repair, such as replacing a heating system or appliance. You may go through several hassle free years before an event like this, but it’s wise to be ready with extra cash available for these unexpected costs. Expect that during a time where you have a surprise cost, you may have a break in your income stream until the cost is repaid in rental income.

Tenant Hassles

Additionally, tenants come and go. It’s possible you may go several months without a rental income stream coming in while still making mortgage payments if a tenant decides to move out and you are waiting for a new one. Worse off, if you ever need to evict a bad tenant, you may be stuck with a lengthy, costly situation where you might need to pay for legal representation.

A Windfall in the Losses

Even if you go through these types of income losses, there is an upside. Property investments continue to gain in value over time, so even with a short-term cost like property taxes or some wait time between tenants, the mortgage payments you make continue to gain equity.

An Overall Independence in Wealth Management

Property investment takes more planning than putting money into a stock or index fund, but it allows for great returns and more individual control on your hands. Instead of watching the market, you have the decision on which property to buy and how to make it more desirable to renters.

You also have the option to sell a property if things aren’t following your plan. Experienced firms like Waterview Capital Corp. will be able to advise if you have concerns about a property investment. Many independently wealthy venture capitalists and investors ride the tide of property investment growth and experience the lulls of extra costs, but they calculate overall cash flow to make their decisions.

As an investor, remember the value of having these direct choices in what you buy and how you manage it, but also remember to plan ahead by having some cash set aside for these both expected and unexpected variations on your cash flow. Being ready for interruptions to your cash flow means being free to plan for future economic growth opportunities.