The Pros and Cons You Need to Know About Rental Property Ownership
Owning a rental property is like any other financial investment - there are many advantages and disadvantages to consider. There’s also a whole lot of hard work and a bit of luck (hopefully good luck) involved. Fortunately, the right resources and a well-conceived plan can help you succeed. Do your homework, learn as much as you can, and carefully consider the pros and cons of rental property ownership before jumping into such a venture.
Pro: Direct Revenue
Every rent check is revenue going directly into your coffers, which is a great way to supplement income. There’s no middle man or intermediary taking a cut, and you have the satisfaction of knowing that other people are helping to pay for your mortgage and expenses. Of course, how much of that revenue you keep has a lot to do with how well you keep up with general maintenance and making sure the property looks great to would-be tenants. Be choosy about where you invest; if the value of your property stays ahead of inflation, you could find yourself in a highly profitable situation.
Pro: The Beauty of Sweat Equity
If you can handle maintenance and make improvements yourself, such as repainting, upgrading siding, updating window treatments, and keeping up with landscaping, you’ll save a lot of money and more of the profits will come your way. You’ll avoid contractor rates and paying top dollar for materials and supplies - and there’s a lot to be said for the satisfaction of doing it yourself.
Pro: Property Manager
Count on having to cope with emergencies, conflict, and stressful situations from time to time, but you don’t have to face them alone. A property manager can alleviate much of the stress of being a landlord by helping with everything from rent collection to addressing tenant problems to handling basic maintenance. If you’re in the Greater Charlotte area, look for a property management agency that offers 24/7 maintenance support and top-notch customer service.
Con: The Unknown
Whether you expertly and thoroughly vet every single tenant, there’s no guarantee they’ll all turn out to be reliable and conscientious people. Prospective tenants are the great unknown variable. You can’t always tell if someone will prove to be destructive, perhaps even violent and dangerous, or if you’ll have to waste a lot of time running down late payments. Destructive tenants tend to lose their security deposit, but that isn’t always enough to cover the extent of the damage.
You never know when an area will lose value. A profitable neighborhood can suddenly take a nosedive and put you behind the financial eight ball, especially if your assets are too concentrated in one property. Unless you use some of your profits to diversify by investing in other properties, rental property ownership can become a major financial risk at any given time.
Con: Taxes and Insurance
Owning a rental property can provide a healthy supplemental income, but you’re still responsible for property insurance and taxes, just like with your primary residence. Unfortunately, property insurance on a rental tends to be considerably higher than your homeowner’s policy, and you never know when property taxes will go up. If occupancy goes down, or if your rates jump, you could find yourself in a bind.
Rental ownership isn’t the kind of investment you can just sit back and watch while the earnings pile up. It takes hard work, a long-term plan for maximizing profits and, ideally, a responsible and experienced property manager. It also helps if you have a healthy perspective and can maintain an even keel when things don’t go your way. Successful investments, especially a rental property, take time and require patience.
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