Real estate is an attractive investment option for people who have the necessary capital. Owning a rental property often seems like a fuss-free way to make some extra cash. However, there’s a lot more involved in being a landlord than many people may think.
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The Benefits and Drawbacks of Investing in a Rental Property
Managing a property requires a generous commitment that many homeowners just don’t have the time for, but it’s crucial to protect your investment by screening tenants and maintaining the building. Whether you have a full-time job or just live too far away, you may find it challenging to meet these demands on your own. It’s a lot to think about, but you do have options.
If wondering if owning a rental property is right for you, the Team Davis RE/MAX Premier Group offers some pros and cons to consider.
You’ll Earn Supplemental Income
Renting out a home is an excellent way to supplement your income. You can use the funds from your rental property to pay off the mortgage on your own home, save up for your children’s university education, or bulk up your retirement savings. According to Seeking Alpha, rental properties can generate larger returns than investing in the stock market. Plus, you get the return on your investment as monthly cash from your tenants! Although buying a rental property is not a risk-free investment, it can be less risky than investing in stocks, since rentals provide consistent income — even during recessions.
Your Property Value May Increase
If the property value on your rental increases while you own it, you could eventually sell it for a profit. If that’s a potential goal, pick a rental home in a great location that’s close to major roads, schools, and public transportation, as homes in central locations with plenty of accessible amenities tend to steadily increase in value. On the other hand, outlying suburban neighborhoods may suffer a decline in value.
It’s Not Fuss-Free Income
While a rental property may provide you with regular income, you will still have to work for it. As Rentprep notes, landlords have several responsibilities. For example, you’ll have to keep your property up to date with safety codes, comply with the Fair Housing Act, perform repairs, and maintain the property. If you’re already a homeowner, you know how quickly maintenance costs can add up, not to mention the time commitment of regular maintenance. Even if you hire a landscaper or repairman, you’ll still find yourself regularly drowning in paperwork. This is why many landlords frequently hire property managers. They can tackle the organization of all these details, as well as the execution.
You Need to Do Payroll
When hiring a property manager, you’ll need to set up payroll, which also means paying taxes. Look for a bookkeeping program that cuts headaches as much as possible. For instance, automated software like QuickBooks Payroll ensures that taxes are filed and paid to the IRS and state authorities accurately and on time, avoiding expensive mistakes and penalties. In fact, QuickBooks even offers tax penalty protection, paying up to $25,000 if you make a mistake and are penalized.
You Could Face Troublesome Tenants
Problem tenants can threaten your rental income. Some common tenant problems faced by landlords include tenants refusing to pay rent, tenants causing damage to property, or tenants constantly disrupting the neighbors. Be ready to handle any and all of these problems before you start renting out your property, and screen potential renters thoroughly. A service like MyRental, for instance, offers inexpensive background checks, so you can avoid rending to duds.
Landlords Enjoy Numerous Tax Benefits
Although landlords may face a few headaches, they also get some amazing tax benefits. As a landlord, you will be able to deduct the cost of repairs to your property, the cost of driving to and from your property, and the premiums you pay for insurance. Landlords can also deduct their mortgage loan interest and credit card interest on purchases made for the property.
Other deductions include the costs of any legal or professional service providers you hire, like accountants or property managers.
Buying a property to rent out is a significant decision. While it can be very profitable for some people, you can end up with an expensive headache on your hands if you fail to do your homework first. Before spending your hard-earned money on a rental property, weigh the pros and cons carefully to ensure you’re ready for this business endeavor.
Ready to find your new home here in the Tampa Bay and Surrounding Areas? Nick, Cindy & Nicholas Davis with RE/MAX Premier Group are here to assist you with all your Real Estate Needs. We are always available at 813-300-7116 to answer your questions or you can simply click here and we will be in touch with you shortly.
Need to get started with your mortgage process? You can contact Kyle Edwards with Iberia Bank at 813-495-5131, or simply click here to start your online application.
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