Pro - Passive Source of Income
Purchasing and maintaining a rental property is something that most people can do in addition to their day job. Even if your property needs repairs, once it is rented, you have income that is continually coming in without working for it on a daily basis. Depending on your overall debt-to-income ratio on the property, this extra income can be significant.
Con - When the Work Outweighs the Reward
Even though having a rental property is a largely passive stream of income, there is work involved that can be a bit much for some people. Keeping the home maintained and the added burden of finding good renters are two factors that can be stressful. This is a con that scares some people away, but one solution is to get the help of a property management company.
In Tampa, the average rent you can expect from a single-family residential home is around $1,316. One way that a property manager can help is by making sure you get the full value for what your property is worth. You also want to ensure your property manager is thorough in conducting background checks on tenants to lower your risk of running into issues. All in all, these services can ease your stress and make owning a rental less of a headache.
Pro - Diversifying Your Investments
CNBC explains how owning a rental property adds diversity to your portfolio that helps protect you from risk. Besides the passive income you get from rent, the property itself is an investment that can pay off later in life. There can be downturns in any sector, but if you consider your rental property a long-term investment, you can expect appreciation of its value in the long run.
Con - Lack of Liquidity
While owning real estate can be a great way to invest in your future, especially for retirement, it isn’t a payoff you can expect to happen overnight. Furthermore, Investopedia explains that because real estate transactions take time, usually months to be completed, the money you have invested in a property can’t be accessed in an emergency. If the money you plan on investing to purchase a rental home is your safety net, or you anticipate needing it for any other reason, putting it into a rental property may not be wise.
Pro - Tax Advantages
There are costs associated with owning and maintaining any home, but many of these expenses are tax deductible, including interest, repairs, and insurance premiums. These are just a few of the many tax deductions you can get as a rental property owner. Taking deductions doesn’t get rid of the expenses entirely, but it can help improve your bottom line.
Con - Ongoing Costs
The critical thing for any new property investor is to budget for costs carefully. This includes not only the purchase price of the home but also the ongoing costs you can expect for maintenance, taxes, and homeowners insurance. It’s important to realize that property tax values can rise, and insurance costs can go up as well. Being aware of the potential for rising and ongoing expenses is a crucial part of budgeting. Ideally, you want to have a fund set aside to cover these costs.
Careful budgeting is an undercurrent that will affect your entire experience as a rental property owner. Some people are so intrigued by the promise of property ownership that they overlook the major details. This is why it’s so important to analyze all the pros and cons, and how they fit in with your budget and lifestyle, before jumping into the rental market.
Let Cowen Property Group help you find the property investment that works for you.
Guest Blogger Bret Engle with Diyguys.net