Rental Properties (short term)
When one thinks of a rental property, usually we assume they mean long term investment. This is not always the case, as short term rentals can make money as well. However – I do not recommend this as it is a very risky investment.
Generally anytime you NEED to get your cash out or HAVE to liquidate to access you money, you are taking a big gamble as you are leaving yourself without any options. The only way short term investment properties are a safe risk, is if you are able to switch to long term without any consequences.
Let me explain; again with the $200,000 condo example. Say your goal is to make a 10% ROI in one year by renting it out for one year and then selling it for $210,000 as you are expecting housing prices to increase by 5% over the next year.
First off, if you include mortgage fees, lawyers fees, realtor costs and other carrying costs, in fact to make $10,000 you would probably have to sell for around $220,000. Now that means housing prices have to increase 10% that year in order for that to work, which is making your goal harder to reach. If now, at the end of the year, housing prices havent went up, yet you are forced to sell because you need access to that down payment money you invested, you are going to have to take a loss to get it back.
The only way this investment strategy makes sense, is if you are not forced to sell and you can instead hold on to the property until it makes it worthwhile to sell. It is always a good strategy to buy investment properties in areas where you expect to see big increases in property values (ie. increased public transportation, neighborhood revitalization) and this can be a lucrative technique if you are buying in the right areas. However unless you are able to hold the property until it reaches its growth potential, (which may take longer than expected) you are better off investing in other strategies.
My advice: Always buy in an area where you anticipate seeing the biggest growth in value, but never expect it to increase at the rate you hope, as that is for the market to determine. Never leave yourself without options.
