Financial Answer Center

Before you contemplate purchasing rental property, consider the following:

• Examine your goals. Make sure the prospect of owning another piece of real estate fits your attitude and your overall portfolio. If your portfolio is already diversified and you are saving enough for your retirement, buying real estate is an investment option worth considering.
• Evaluate your personality. Do you possess the right attitude to own and maintain real estate? Don't underestimate the depth of the commitment. Do you have the skills and stamina to deal with all the issues that come with having tenants?
• Are you comfortable enough with the risks associated with real estate ownership? Remember, you could be exposed to potential lawsuits from tenants and others who are on the premises.

IMPORTANT NOTE: Real estate ownership requires a larger commitment of capital and is illiquid.

• Evaluate your analytical skills. You will need bookkeeping skills to track your income and expenses. Analyzing the return on your investment is also important.
• Understand and accept the potential consequences. This could be a money loser and a stressful undertaking.
• Make sure you understand the tax ramifications of owning rental property. You might want to consult with your tax professional to see what impact the purchase may have on your particular tax situation before you buy.

Remember, the responsibility of owning a second piece of real estate can be overwhelming.