Dear Dr. Per Cap:

My spouse and I are interested in buying a small house to rent out for extra income.  Is this a smart side hustle considering today’s higher interest rates?

Signed,

Aspiring Landlord

Dear Aspiring Landlord

There are few endeavors I respect more than a well-planned side hustle.  And the right investment property can be a great move for any family, regardless of interest rates.

Higher interest rates aren’t as big a deal when purchasing an investment property as they are when buying a house for a primary residence.  That’s because as a landlord you can pass the cost of higher mortgage payments onto your tenants in the form of higher rental payments.

The key to coming out ahead with an investment property is buying a house that’s in a good location with a strong market of people needing to rent homes.  You’ll want to make sure the area is relatively safe too and reasonably close to places like a grocery store and workplaces.

There are all kinds of rental property calculators like this one I found online to help you determine if a home you’re buying to lease out is going to make economic sense for your situation.  Interest rates are just one factor to consider along with the purchase price of the house, the estimated monthly rental payment, property taxes, vacancy rates, and maintenance and repairs.

The last issue is what I see making or breaking a lot of rental property investors.  Because in addition to interest rates having more than doubled in the last few years, maintenance and repair costs have skyrocketed too.  The landlords that seem to really do well are the ones who are able to do their own maintenance and repairs or have reached a point where they can hire an employee to do the work.  Please note that for the latter to be possible a person probably needs at least a half dozen rental houses to cover the cost of a full time maintenance person.

Leaky faucets, broken windows, periodic painting, and replacing appliances are just a few of the many problems a landlord is accountable for.  And if you have to hire a plumber, an electrician, or a general contractor every time your rental house needs fixing, those costs are going to burn through your profits in the blink of an eye.

Good luck and remember the quote “Always pay rent with a smile.  I tried but my landlord wanted money!”

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.