Rental properties sound ideal at first: If you purchase a turnkey property, and then you get good tenants, acting as a landlord certainly can be an ideal way to make some extra money (especially if you buy in an ideal rental market). However, if you choose to take on a rental that requires a renovation, unexpected expenses can arise; plus, most landlords won’t have ideal tenants every time. There are many pros and cons to owning rental properties, and jumping right in can be tempting, but it can also be a disaster. Before you make a decision, it’s a good idea to look around for ideal properties, ask advice from other landlords, consider the financial implications of your decision, and determine whether you really have the time and energy to become a successful landlord. Here are the pros and cons to consider before purchasing a rental property.
Obviously, owning a rental property (or multiple properties) can add to your income. According to Money Magazine, the best ways to make more money on your rental properties include decreasing vacancy, minimizing turnover, using late fees, and adding additional services.
Becoming a landlord also gives you a chance to decide how involved you want to be in your job. If you are taking on rental properties as your full-time job, you may be confident that you can handle everything yourself. On the other hand, if you are hoping to keep working at a separate full-time job, you might prefer to hire a property manager, or at least use contractors for issues that are time consuming. The good thing about owning rental properties is that you can definitely determine how much you want to work, and that isn’t a possibility at many jobs.
Rental properties can also give you peace of mind as you grow older. If you purchase rental property, and you hold on to them for many years, you can later sell them and make money later due to home appreciation. You can also benefit from tax benefits.
Owning rental properties isn’t always a smart financial idea. Finding tenants often requires more than simply putting up a sign on the lawn; especially if you live in an oversaturated rental area, you may have to spend a great deal of time and money on advertising. In order to attract the best tenants and have a wide pool of applicants, you may need to pay for newspaper, magazine, or even social media advertising.
In addition, you will want to carefully screen potential tenants (you will want to be sure to ask for their social security number, employment, income and credit history, references, and past evictions), and if you end up with a bad tenant you could face bounced checks, lack of income, and damage repair. If you can’t find a tenant or the property has to be repaired over a significant amount of time, you will also lose money. You also may face legal ramifications.
Owning rental properties can also require a lot of time. You can delegate some or all of the responsibilities, but you will have to pay someone else to do it (which means loss of rental income). At the minimum, if you choose to do everything by yourself, you will need to attract tenants, fill out paperwork, fix problems, perform regular maintenance, and handle phone calls and rental fees; these things alone can take a good deal of time.
Should you invest in or purchase income property? Consider your stage of life before you do. If you are extremely busy, rental property ownership won’t necessarily be the best idea for you unless you are willing to hire help. Also, you will need to take out a loan unless you have a lot of extra money lying around, so you also need to consider your credit standing.
Your personality and abilities should also be considered: Some people would enjoy the social aspects of being a landlord, but others would not be able to go after tenants who owe money or need to be evicted. According to Landlord Station, a good landlord will keep good relationships with tenants, complete repairs quickly, maintain the property and keep renters safe, and keep the grounds clean. If you think you can do these things, then investing in a rental property might be the right choice for you.