Renting out a property is considered to be an investment. And like any investment, it comes with its potential for risks and rewards. The good news is that by accepting the responsibility and maintaining your property, you are likely to come out with more reward in the long run. As long as the market and local economy floats your way, you should always have renters who are interested, and therefore some kind of output from your investment. To help you consider whether or not you’re up to the task, here is a list of the major pros and cons of owning a rental property. Consider them carefully.
Pro: Income From Renters
The most obvious benefit of renting out your property is that you should (all things considered) receive a monthly income from the renters who inhabit it. As long as you can keep renters, you should be able to rake in a large portion of what the place is worth per year. If your tenants pay you more than your mortgage, you will be making an income from the property. This direct stream of income is a valuable asset. If you are planning to hold the property for a long-term commitment, the fluctuations from year to year shouldn’t disrupt a positive cash flow. The key is finding renters that will stay, or owning a property in a coveted location.
Pro: Income From Property Value
As your tenants will pay you monthly, your property will also increase in value if it is in a good location. This increase may not be much, but it could stand to be as much as inflation over time. In essence, if you own property in a good location, the popularity of the place should increase the value of your property. Supply and demand!
Pro: Sweat Equity
If your property is in good shape, you may be able to charge a higher rent for it. By fixing up your place DIY-style, you can save on repairs and maintenance while increasing the value of your home. It’s called “sweat equity” because your hard work is what makes the home more valuable. Sprucing-up the property may also help you to fetch a larger monthly income– consider cosmetic improvements as well as foundation stability. Sourcing renovation materials from local granite distributors and artisan makers can take your property to the next level.
Con: Tenants
A challenge of owning a rental property is to find good tenants. There are plenty of horror stories out there about tenants who abuse a house and decrease its value. You can use an asset like free tenant screening to market your property to a wide range of potential renters and make sure they are the kind of person you want living in your home. Some information you will probably want to have tenants includes credit score, background check, eviction reports, and employer history. This may give you a better idea of who will pay the rent on time and keep the place as nice as they found it. Ensuring they are the right tenant for you can be crucial to appreciation of your property’s value.
Con: Maintenance
It can be a pain to keep up a rental property for reasons like the tenants are destroying it, or it needs multiple repairs, or some natural disaster has affected it. It is your responsibility, however, as the owner to make sure your rental is kept up nicely. This may require you to hire help or do the maintenance yourself. Hiring an agency to help with the upkeep might drain your bank faster than the monthly rent can balance.
Con: Asset Risk
Every investment has a risk factor. The neighborhood surrounding your property could undergo a major change and lose its economic value. This could drastically decrease the amount of rent you are able to charge, and your investment will not yield more than it costs to maintain. The odds of this are unlikely; however, it is not out of the realm of possibility.
All in all, if you have the tools to make your investment last, you should see it as an extra bit of cash as long as you maintain it. While there is always a chance something could damage your property, your long-term commitment to your investment should show a gradual increase in reward.
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