Renting property can be a great option for homeowners who are not ready to sell their homes. But, renting a home comes with its own set of responsibilities.
Vet a neighborhood’s livability by checking for parks, restaurants, gyms and public transportation links that are appealing to prospective tenants. Find out if a town is planning to hike taxes, which can affect housing prices.
1. Less Upfront Investment
Owning property for rent can be a great way to make a return on your investment. However, it’s important to calculate your potential cash flows before diving in. This includes calculating annual rental income, mortgage payments, taxes and insurance costs as well as maintenance and repair expenses.
It’s also crucial to consider the risk involved in owning a rental property. Tenants may not pay on time or cause extensive damage, leaving you with an expensive repair bill and a vacant home.
Investing in property for rent can be a good choice if you’re looking to diversify your portfolio. Real estate can appreciate in value over time, and you can sell it when the market is right. This can give you a stable source of income that can help you reach your financial goals.
2. Less Risk
Rental properties are considered to be low-risk investments, but that doesn’t mean there is no risk involved. If you choose the wrong property to rent or underestimate its costs and expenses, you could end up losing money. You also run the risk of a decrease in rents. If general market conditions decline, you may have to lower the amount you charge to attract tenants, and that can leave you with an income level that doesn’t match your expenses.
There is also the risk of a bad tenant, which can cause you to spend time and money tracking down late payments or deal with damage caused by unruly tenants. It’s a good idea to thoroughly screen potential tenants. This includes pulling their credit report and contacting previous landlords.
3. Less Eviction Risk
One of the major risks associated with owning property for rent is dealing with bad tenants. If you have a tenant that stops paying the rent or destroys the property, it can be costly and time-consuming to get them out. A good way to avoid this is hiring a tenant screening service, a property manager or a residential network like Belong to run background checks on tenants before renting to them.
However, even if you have a good tenant, the economy could cause them to lose their job, making it difficult for them to afford the monthly rent. This can put you in a
tough situation where you need to lower the rent, which can significantly cut into your profit margins. If you have a mortgage, this will also require lowering your pretax income.
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