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Advantages and Disadvantages of Rental Properties: What You Need to Know

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Owning a rental property can be a profitable venture. However, it is important to know what you are getting yourself into before making the decision to purchase one. If you already own a house that you can transform into a rental property, you will be able to make a profit by managing it yourself.

If you are looking to purchase an entire property so that it can be rented out, you will be facing a lot of upfront costs. This is because you have to buy a house, have it renovated and updated, and pay for other expenses such as maintenance fees, a mortgage payment, and utilities. With potential upfront costs totaling tens of thousands of dollars, it is important to know what you are getting yourself into before making this decision.

Once you decide to open your rental property to tenants, you can find reliable letting agents who can advertise and let your property for you. This way, you do not have to be the one collecting rent, interviewing tenants, and doing maintenance work. However, you will still need to take care of vacancy periods for when your property is not occupied or rented out to maintain it.

Advantages of Owning a Rental Property

Running a rental property business can be rewarding, especially if you manage it properly. Here are some advantages to consider:

  • You can make an extra income from a passive source: This is because you can rent out your property to tenants and make money from the monthly rental fees. This is a good source of income because you just have to sit back and wait for the money to come in.
  • You can become financially independent: Owning a rental property will get you out of the rat race and give you enough financial freedom through passive income with little or no work on your part. This is possible because renters are paying for all expenses which are covered in their rental fees, including utilities and repairs like painting walls, fixing leaks, etc. Therefore, it is one of the best investments in terms of passive income.
  • It could be a good investment: Investing in rental properties can also make you money when you sell them off. Of course, this will depend on the market value at that time and how well it was maintained. However, if managed or bought correctly, your intent to get it sold will be a lot easier.
  • It is possible to deduct mortgage interest and property taxes as long as you meet the requirements for itemized deductions. This way, you can offset your mortgage interest and property taxes, which will be quite useful in the long run.
  • You can also claim depreciation on your rental property if it has been in use over five years or more, which lowers your taxable income by spreading out the cost of purchase.

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Disadvantages of Owning a Rental Property

There are also some disadvantages to owning a rental property. Here are some of them:

  • The property is not likely to appreciate in value, so if you were hoping for some equity, you will be disappointed. Therefore, you need to think about other ways to build equity, such as dabbling in real estate investment trusts or an exchange-traded fund.
  • You are responsible for maintenance and repairs on the property. If a pipe bursts or your tenant trashes it, you’re stuck with the bill. However, the rent that your tenants pay each month should be enough to cover any maintenance costs which is why you need to determine a reasonable price for rent so that it covers the costs of necessary repairs.
  • If you are not a licensed contractor, then it is unlikely that you will be able to do any major upkeep on your rental property. This means if something breaks or there’s an issue with some damage caused by the tenant, you’ll need to hire someone else who does have a license and knowledge to do this for you.
  • You have less freedom than homeowners because renters can leave at any moment without notice which means that they may damage your house before leaving. This may include physical damage, such as holes in the walls or broken window screens and/or vandalism which includes tearing up carpets and even smashing windows.
  • You can’t choose who you rent your property to which means that it’s possible for someone to move into your rental property with a bad credit rating, for example. This can be a problem if they don’t pay rent on time or damage your property.

Considering Both Sides of the Coin

Before getting into the business of owning and managing a rental property, you need to take into account the advantages and disadvantages of owning one. It’s important to consider both sides before making this kind of commitment because it can be expensive to buy a rental property and there are many factors that need to be considered when you’re deciding if this is the right endeavor for you.

You need to take your time when it comes to deciding about investing in a rental property so that you can be sure that you won’t end up regretting your decision in the future. A rental property can be a lucrative investment if you do your research and find the right property in an area that will perform well, but it can also be a financial disaster if you buy into something without fully investigating.

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