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  • Pros and cons of owning rental properties

    Rental properties can be a great opportunity to grow your assets, but they do come with some responsibility. Consider the following if you are thinking about getting into the rental business.

    Pros cons rental property

    PROS:

    • Real estate prices have gone down. With mortgage rates and real estate at some of the lowest values in history, now would be the time to invest in property [1].
    • Monthly income. If your tenants are paying you more than your mortgage costs, then you will be making extra income each month on rent. Keep in mind that in order to have a higher rent cost, your rental will need to be clean and well-kept [2].
    • Beach vacation home. If you plan to retire to the beach or to the mountains, this could be a great way to start. You could rent out your home while you're not there and plan a getaway in your practically-free vacation home. This will reserve your spot in your desired retirement location and when you're ready, you can transition to moving in [1].
    • Sweat equity. By doing low-budget home improvement projects, you can add value to your home without spending a lot of money. This “sweat equity is likely to add additional value to the property as you maintain and upgrade it” [3].

    CONS:

    • Awful tenants. Though some tenants will pay their rent on time and leave the house close to the shape they got it in, not everyone is that way. Some renters will destroy your house knowing that they were going to lose their security deposit anyway. Not to mention, there's a chance that renters may stop paying rent altogether and wait for you to take them to court or evict them, causing you to pay for all of the fees associated with the legal system. Consider doing background checks to help avoid this [2].
    • Landlord responsibility. You are becoming a landlord. This means you are responsible for fixing broken appliances, calling exterminators, and doing background checks on tenants. Being a landlord can become a full-time job faster than you hoped, so make sure you understand the responsibilities [1].
    • Requires capital. Not only will you need money to put a down payment on the home, but you will also need liquid assets for unexpected repairs. Imagine the emergency savings that you have for your current home and double it at least. You are covering another home and your tenants will expect you to repair it quickly. Also, think about the fact that you will need extra insurance since most homeowner's insurance only covers owner-occupied properties [2].
    • Risk. Since rental property is an investment, there is risk associated with it. You are consolidating all of your assets into one property. If something happens to your neighborhood that you're buying in and your house goes downhill, you can lose a lot of money [3]. Also, you might not always make money off of your property. There's a good chance your property won't be rented out all the time [1].

    [1] The Pros and Cons of Rental Real Estate, U.S. News
    [2] Pros & Cons of Owning and Managing Rental Properties, Money Crashers
    [3] The Advantages and Disadvantages of Owning a Rental Property, The Simple Dollar



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