Weighing in On Rental Property Investment
Having a listing of houses that are up for rent can be a very attractive investment prospect. But as with all investment opportunities, it is best to take a careful look at the pros and cons. Is being a landlord worth it? Should you invest in rental properties instead of stocks and bonds? Let’s take a closer look, shall we?
Pros of Rental Property Investment
Freedom. With this kind of business, you are your own boss. You have a high degree of control of your time, rather than having to slog through a 9 to 5 office schedule. You also have the freedom to make your investment choices, as well as the tenants you would want to rent out the property to.
Earning equity. As long as you are able to rent out the property, the rental payments coming in can cover the monthly mortgage or hard money loan payments. As you do so, you are earning equity on the property. Thus, renting it out enables you to leverage on the property by making it pay for itself. Over time and depending on the economic situation, you can even enjoy income in terms of the increased real estate property value.
Enjoy passive income. Once you have on your roster a number of rental properties, you can enjoy passive income or income that you get without having to do a lot of work. You can focus on other sources of income or enjoy the passive income you already have. With this, you can retire early or go on your dream holiday.
Potential to grow your property portfolio. As you earn equity and passive income, you can have enough saved up to cover the payments for a new piece of rental property. You will also be able to get better terms with your loan. Your property portfolio will also increase your chances of getting a traditional bank loan. With more capital on your hands, you are able to take advantage of opportunities to grab distressed properties at a price that is much lower than what they are actually worth.
Responsibilities of a landlord. Your tenants may call on you at odd hours to lodge complaints about the property. You should also be aware of the premises liability you have with the property.
Initial struggles. It will take some work to get your rental property business up and running. If you already have problems with your credit standing, you will not be able to get a traditional mortgage. You can turn to hard money lending to help finance your purchase and any necessary renovations. You will also need to work on the property so that it will be suitable for renting. You will also need to prepare the legal documents, do your due diligence on potential renters and take care of things such as landowner’s insurance.
Increased taxes. Take note of your state’s tax laws that apply to property tax caps on rental properties. Some states provide an exemption on the primary residence but succeeding properties may be charge with higher tax rates. In some states, though, taxes may actually be decreased. It depends on what tax laws apply, so it is best to talk to your accountant about potential tax implications.
Poor choice of renters can be a headache. Even with postdated checks, unscrupulous renters can renege on their rental payments. This will necessitate legal action on your part – for you to recover unpaid rents or to evict them from the property. This can be an emotionally and financially draining experience. Also, renters may wreak damage on the property. They may be careless or outright malicious. The damage may cost much higher than the deposit you charge at the beginning of the contract.
Maintenance and repairs can eat up on profits. As a landlord, it is ideal that you keep the property in tip-top shape. This means maintaining the look of the property through repainting, ensuring that the plumbing and electrical wiring are in good condition, or keeping kitchen appliances in good repair. You will need to set aside an emergency fund for unexpected repairs.