Purchasing a rental home can be a great way to enter the real estate investment market and begin building wealth. However, as with most things, it comes with its advantages and disadvantages. While anyone can manage a rental property, it doesn’t mean the investment is worthwhile for everyone. In order for it to be a successful venture, the pros must carry more weight than the cons in your specific situation. If you’re considering rental property ownership, American Business Funders offers a quick look at some of the pros and cons.
We’ll start with a few of the advantages of owning a rental property.
It can bring in additional income.
The benefit that draws most people to the idea of purchasing a rental property is that it produces income when it’s occupied. In the best-case scenario, the monthly rent you receive from tenants will cover any costs associated with owning the property (mortgage, taxes, insurance, etc.), and leave you some money leftover. This supplemental income can, of course, make the investment worthwhile when it’s steady.
The property value can rise.
Another advantage is that the property value on your rental can appreciate over time. If you purchase a home in a good neighborhood with a variety of local attractions, you stand a decent chance of the property value rising, even if you don’t make any major upgrades to the property itself. In some cases, the property value will either remain flush with inflation or not keep up with inflation. But if the area is growing in demand, the property value can beat inflation.
There are also tax benefits that come with renting out a property. As landlord, you can take several deductions on maintenance expenses, such as:
There are tax benefits.
From a tax perspective, it can also be advantageous to register as a formal rental property business. Here, you can find some explanations on how to start a business as well as the various steps involved.
There’s upkeep involved.
Possibly the most significant disadvantage to owning a rental property is the fact that you are responsible for keeping it in good condition. Some investors choose to do most of the maintenance, repairs, and cleaning themselves, which can save a lot of money. However, this proves too overwhelming for many landlords, and the lack of experience and time spent on tasks can end up costing more money in certain situations.
While it can eat into rental income, many people opt to hire a property management company to deal with upkeep responsibilities. An experienced property manager can increase your cash flow, minimize the time your property is vacant, and do an extensive background check on tenants, which lowers the chance of rent delinquency and damages occurring to the property so you can get the most value possible for your property.
You can have bad tenants.
There is always the possibility that you will end up with a bad tenant that passes background checks and first impressions with flying colors. In this case, you could suffer months of missing income — not to mention the costs of repairs if the property is treated with carelessness. Also, you could have a tenant who requests minor repairs each week.
You have to pay even if it’s vacant.
Lastly, even if your tenant is neglecting to pay rent or you go through a period of vacancy, you’re still responsible for paying expenses on the property during that time. These expenses include everything from property taxes to insurance to HOA fees. If you’re not receiving your monthly rent, these costs can quickly add up and cut into your profits.
Now that you have an idea of the advantages of owning a rental property, let’s dive into some of the disadvantages.
If you’re considering getting into the rental property business, you should mull the pros and cons and evaluate how they will affect your chances at success. That way, you can put yourself in the best position to succeed if you decide to purchase a rental property, and you can avoid creating a money pit if you decide it’s not for you.
If you’re ready to dive into real estate investing, connect with American Business Funders to find the right type of loan to get your real estate venture off the ground. Connect with us today! 1-855-334-6223