But here’s the deal: You should only buy a rental property if you have a full emergency fund (remember, that’s 3–6 months of your typical expenses) and you can pay for the property with cash. Taking out a mortgage for your personal residence is one thing, but going into debt for an investment property is way too risky. That’s because, while rental properties can be a great source of extra income, they can also be a major pain in the neck from time to time. Owning a rental property means dealing with renters, and sometimes renters don’t actually pay their rent. Sometimes they break stuff. Sometimes you won’t even be able to find a tenant in the first place. As a landlord, you’ll be on the hook for all those risks and the expenses that come with them—like repair costs and insurance. And then there’s the time cost. When the toilet busts at 2 a.m., guess who’s coming to the rescue? That’s you. (This ain’t “passive” income, folks.) When you pay cash for a rental property, you can afford to take on those risks—and you may wind up with a legitimate cash cow that’ll last for years. But when you use debt to invest in real estate and have to worry about making payments every month, a missed payment from a renter or a big repair could send your personal finances into a tailspin. And just so we’re clear: Any real estate investing you do beyond your primary residence should be in addition to putting 15% of your income toward tax-advantaged retirement accounts like a 401(k) or a Roth IRA. Flip a House If becoming a landlord isn’t for you, another way to invest in real estate once you’ve paid off your primary residence is flipping a house. That means you buy a house, make improvements, then sell it—all within a fairly short amount of time. The key is to buy low because in most cases, you can’t expect to make a decent profit unless you’re really getting a great deal on the front end.
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