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Saturday, February 24, 2024

College 101: Property and Income

I own a small property in my hometown, thanks to the generosity of a departed relative. The problem is, I don’t really use it. I was thinking about renting it for a while, but I never really got off the dime and did the work it would take to do that (I don’t even really know how to do that). Now I’m thinking about selling it, but my parents clearly wish I wouldn’t. They think I should hold onto it as an investment. But what good is an investment if you can’t get money out of it? Experts, I’m not sure what to do. Can you give me some insight into how all this real estate investing stuff works?

It’s wonderful that you were passed down such a generous gift from your relative. But it’s also understandable that the situation has you stressed. Investing in real estate isn’t the easiest thing in the world, and sometimes it can be difficult to understand how everything works.

Real estate is valuable, of course, and the property you own could change in value over time as supply and demand shape the real estate market in your area. Home values change, and you may find that holding onto the property could help you reap a larger profit later on than you’d get now. On top of that, selling the property has tax implications that you may not want to deal with right now. There are good reasons for your family to lobby against selling now. That’s not to say that it’s a bad idea, of course--owning a property is a big responsibility, especially if you choose to rent it out (more on that in a moment), so there are also reasons that you may want to sell it now and save yourself some time and stress as you finish college and begin your career. But consider the decision carefully!

Choosing to hold onto the property may be a good idea, but your frustration is understandable: the value of this property presumably represents a good deal of your net worth, and while giving it a chance to grow is good, not being able to access any of that value in a pinch can be tough. But there are ways to make your property work for you, and the most obvious one is renting.

Generating income from your property through renting is a good way to get some extra cash. It will mean more responsibilities and some short-term expenses, including plenty of maintenance to ensure that deterioration--which will be accelerated when the property is occupied--doesn’t reduce the value of your underlying investment. But if you can manage it, renting your property can, in a way, allow you to have your cake and eat it too: you’ll have access to cash generated from the property in the near term while still holding onto it as a long-term investment.

There are things that you can do to reduce your costs and responsibilities as a landlord. It’s possible to advertise rental property for free and even get background checks on potential tenants done for free. Or you could dip into your savings or rental profits to lighten your own workload by investing in things like maintenance contracts. Your solution will likely be a mix of DIY and paid solutions that is determined by your own schedule and ability to take on new responsibilities. Be sure to get landlord insurance to protect your space. Your parents may be able to help you get all of this organized, since they seem enthused about the idea.

Both of your options are valid, but don’t ignore the possibility of renting out the space. While it’s not an easy task, it’s more feasible for individual owners of small properties than you might think.

“Don’t let the fear of losing be greater than the excitement of winning.” -- Robert Kyosaki

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