There are certain advantages and disadvantages in owning a rental property. Now let’s look at both of them.
The advantages in owning a rental property:
Compared to other forms of income the advantages of owning a rental property is less. However, everything goes on in the appropriate manner, you can earn a huge sum from this stream of income.
You will be having the benefit of a direct income flow through a rental property. The monthly paychecks will give you an income that you get when you don’t mostly carry out any work. In cases the mortgage is lower than your sum got for rent there will be the advantage of a surplus.
All the form of investments comes with a risk and so does owning a rental property. But once you go with this, you may get some reward out of it. The property will see appreciation in due course and your equity investment is balanced. There is also the chance of getting considerable tax break. At the case of selling off your property these two aspects will boost your income. This may also happen when you refinance the property.
You will upgrade and maintain your property. The value of the property will be enhanced during this course action and this is called sweat equity. You may involve in repainting the property etc. to improve the value of the property at a reasonable financial cost. This will be useful when you sell it at a later stage.
When you are owing and having control of your rental property there is the advantage of independence attached to it. But again you will not be able to earn your livelihood through the profit gained from just one rental property. Having said that, many prudent investors own and manage a huge number of properties which in turn requires lot of commitment and hard work. But the key is that they are in a situation to act out independently.
The disadvantages of owing a rental property
Sometimes the tenants will leave the place in such a mess that you need to repaint it. You may be also put in a situation wherein you have spend lots of money to make the property retain its original attraction. Sometimes the tenants will even escape from paying the rents.
Not only do you need to have some cash for buying the property but should also have some money to manage it. If the tenant has put your property in a mess you may require lot of money.
The tenant is on the advantageous side when you don’t carry out the required repairs. This may be owing to your financial woes. But here then the law is favorable to the tenant only. It becomes essential to consult a lawyer who is expert in real estate to go through your lease.
There are risks for a rental property including the vagaries of the market. The property may see a depreciation, a succession of bad tenants etc.
Do clarify the questions regarding tax with your accountant.
The final note:
Managing and owning rental properties is one of the several alternatives and it may suit few people. You have to have cognizance of your financial position and your inclination to take up this alternative while moving on with this move.
Dc Fawcett, the founder of the Virtual Real Estate Investing Club, gives some sound advice regarding investing money in rental properties. One could get a fair idea regarding the real estate scenario by going through his blogs.