A rental property that earns more each month in revenue than it costs in expenses provides a good steady income. Over time, that income can add up. For example, even a modest income of $100 a month is $1,200 a year, which if invested at a 9% return will net $38,404 in 15 years
A well-maintained rental property can gain in value over time, build your net worth, and provide additional income for you in retirement. They key is to keep the property in good shape, so that you have tenants who are paying off the mortgage, while the property increases in value.
If you set your business up correctly, you will enjoy the tax deductions associated with having a business, which can improve your personal income statement. Contact an accountant with experience in rental properties for more specific information on your situation.
Harder to Finance
If you are specifically buying property to rent it out, keep in mind that banks require a larger down payment and usually only offer higher interest rate mortgages on rental properties.
Unknown Occupancy Rates
Any time the property is unoccupied, it costs you money. Things beyond your control like the economy, the housing market, even the time of the year can make finding good tenants difficult.
Keeping tenants happy with good customer service and screening tenants properly before they move in are important skill sets to master to mitigate an unoccupied property. If you want to learn about what the rental occupancy rates are in your area, contact us and we’ll be happy to get you up to speed on what’s happening in your area.
Taxes On Income
The IRS taxes you on your rental income which means you don’t make as much money as you’d like and you have to keep meticulous records of your income and expenses and pay quarterly taxes.
As a landlord, there are property laws and regulations governing rental properties that you need to follow. Not knowing or understanding these laws doesn’t make you any less responsible for them. You’ll have to either hire legal counsel or get schooled on the issues. Further, if you get bad tenants and you have to evict them, an eviction is a legal process that can cost as much as $10,000 per occurrence.
Pipes bursting, water heaters breaking, roofs crumbling–there are any number of systems that can break and cause a major, unexpected expense for you. Not to mention, these things never seem to happen between the hours of 9 and 5 Monday through Friday. Your tenants will expect you to rectify the situation quickly during off hours.
Screening tenants, collecting rent, answering tenant calls, performing maintenance on the property, keeping financial records—it’s all time-consuming. If you are busy and short on time, to begin with, this may be a real drawback to your success as a landlord.
Hopefully, this list of pros and cons has given you some clarity as to what is involved in being a landlord. If you’re still not sure if being a landlord is for you, you can find out if you are cut out to be a landlord and what you need to know to manage your rental property in our landlord resource library.