Owning a rental home can seem exciting, but it definitely has its ups and downs. Before you assume that you’ll make millions buying and owning a rental property, learn the good and bad sides of owning one.
The Pros of Owning a Rental Home
The benefits of owning a rental home are plentiful. They include:
- You should make an income – If your rental home stays occupied and your tenants pay their rent, you stand to make extra passive income
- You may get help paying your mortgage – Again, if tenants pay their rent, you can use the money to offset the cost of the mortgage
- You may be able to write off some of the cost – If you are able to itemize your deductions on your tax returns, you may be able to write off some of the interest you pay on the mortgage as well as your real estate taxes
- You have a forced saving account – Your home will gain equity, which you own since you are the homeowner not the renter
- You can increase the home’s equity by making improvements – When you invest money in the home to improve it, you may increase your equity and/or profit on the home
The Cons of Owning a Rental Home
Unfortunately, with the good must come the bad. Knowing the bad side of owning a rental home can help you decide if it’s right for you.
- Upkeep can be costly – Generally, tenants don’t care for a home as much as the actual homeowner. This could make upkeep of the home more expensive for you as you have to repair/replace items more often.
- Maintenance and repairs are your responsibility – Even though you don’t live in the home, you are still responsible for caring for the issues that arise with the home. It doesn’t matter if the issues come up day or night; if it’s an emergency, you are responsible.
- You could lose money – There’s no rule stating that a home has to appreciate. Values do fall sometimes and if it occurs to your rental property, you could really feel the hit.
- Tenants aren’t always reliable – No matter how much research you do, you may end up with a tenant that will default on their rent. While you can take them to court, there’s not a lot you can do to get your money from them.
- You have to pay the mortgage no matter what – Even if your tenant defaults or you have a vacant home, you still have to make your mortgage payments every month
It could be difficult to sell – Buyers are often wary about buying a rental home. They know that it probably wasn’t as well maintained as an owner-occupied property. They also know that the home has probably changed tenants multiple times, making it less enticing to buy.
Should you Avoid Rental Properties?
The list of cons seem so long, so should you avoid rental properties?
Luckily, it’s not necessary to avoid them altogether. What is necessary is proper research. Make sure you know what you are getting yourself into by knowing as much as possible about the property before you buy it. Have a professional inspection done and do your research on the area too. Your appraiser can help you figure out the average rent collected for the area as well. This can help you determine if it’s profitable to purchase a home in this area and rent it out to tenants.
If you want to own a rental property but can’t manage the daily responsibilities, you can always hire a property manager. Keep in mind that this will take away from your profits, so make sure that you have plenty of room in your rent to cover the cost of the property manager as well.
As with any purchase, you need to do your due diligence. Some homes make perfect sense to purchase as a rental property and others won’t get you anywhere but deep into debt. Talk with your licensed real estate professional so that you can make the most of your purchase and investment in a rental property.