Updated: Oct 26, 2021
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Should You Own a Rental Property? We Look at the Pros and Cons
This is a good time to be a landlord. There are more renters on the market than ever due to high housing costs, Millennials are waiting longer to buy, and the internet has made it easier than ever to find reliable tenants.
These factors make it tempting to invest in a rental property or start renting out an existing one, but they don’t mean it is easy. This is not a decision to be made lightly, so prospective landlords need to make sure they understand all the factors involved. Below, Interior Connection has summarized some of the pros and cons so you can make an informed choice.
Pro: You Get a Passive Source of Income
This is the biggest and most obvious advantage of owning rental property. Most people who start renting property do it for the extra income, and it is true that you can make a good profit if you manage things well. If you are thinking about investing in a rental property to boost income, Mashvisor can be a very useful tool. It shows you the investment market in any given area, including how much you can hope to make. It’s a paid service, but there is a two-week free trial.
Pro: Your Property Stays Secure
Vacant property is significantly more vulnerable to dangers such as vandalism, theft, water damage, squatters, and fire — indeed, vacant houses are a relatively common target for arson. Tenants don’t just pay to stay in your property: they keep it safe and in good shape.
Pro: You Can Hold on to It Until the Time Is Right
Just because you have a property at the moment doesn’t mean that now is the right time to sell. According to Opendoor, the best time to sell a house is during the spring, summer, and early fall months, with homes typically selling much faster during this time of year. If you rent a house in a family-friendly, residential area in the winter, for example, you might be better off renting it until you can put it on the market and sell it in the spring.
You may also simply want to wait for your property to increase in value. For example, if you think the area is going to become more in-demand in years to come, it makes sense to wait.
Con: It’s Stressful
The biggest mistake landlords make is assuming that all they have to do is lease the property. Managing a rental is hard work, and it can be very stressful. You need to source tenants, solve problems, stay on top of taxes and insurance, and maintain your property to a high standard.
Using a property management company is the obvious way to get around this. Doing so can bring round-the-clock support and peace of mind, but you need to understand how property management company’s rates will affect your bottom line.
Con: Selecting Tenants Can Be Difficult
For the most part, tenants will follow the rules established and won’t give you too much trouble. However, a bad tenant is enough to make any landlord think twice about continuing to rent out their property. Avail’s informative guide to finding the right tenant contains some very good advice, from knowing your responsibilities under the law to all the checks you should run before agreeing on anything.
Con: Large Upfront Investment
Not only is there the deposit (and any mortgage payments until you find renters), but you will probably also have to do some repairs. Make sure you understand the capitalization rate of the property before buying (i.e., the annual return you can expect), so you can have an idea of how long it will take until your investment fully pays off.
One Additional Step is Critical: If the above pros have you thinking a rental property is the best move for you, creating a legal business entity is an essential step. There are numerous types of entities and rules around them in each state. However, an LLC is a popular option that provides personal liability protection and pass-through tax flexibility as well. Forming an LLC has never been easier thanks to online services like Zen Business.
Don’t let the cons put you off the idea of owning rental property. It’s a good way to make money and to increase your assets, and it remains one of the most reliable investments you can make. Just be sure you understand all the financial, logistical, and personal implications of becoming a landlord. That way, you will feel much more in control every step of the way.
Looking to revamp your rental interior? Turn to the expert design team at Interior Connection; we can furnish or remodel your property based on your desired specifications. Book a complimentary call with us today!