The Pros and Cons of Owning a Rental Property

Rental properties can supply landlords with a steady stream of income. However, anyone looking into real estate investments should understand that there are certain inherent risks that go along with being a property owner or landlord. Individuals who don’t understand the responsibilities may be taking on more trouble than it’s worth.

The real estate market has a tendency to fluctuate. There are times when property owners may not reap the finances they expect.

There are many tax benefits related to owning rental properties:

The IRS allows deductible expenses in the areas of home improvement, depreciation, and other necessary expenses. So insurance, mortgage interest, and maintenance costs can be deducted. Other write-offs include seasonal rentals where owners can deduct expenses for staying in their own property for 14 days during the year.

Renters can also deduct a certain percentage for using the basement or garage as a rental.

Unfortunately, there are many cons when owning rentals properties:

Insurance premiums can spike at any time. For property owners who live in areas prone to natural disasters, this can be a killer. Rising taxes may rise faster than rental hikes.

Property upkeep can cost a pretty penny. A skilled landlord may be able to do some of the repairs on their own. Individuals who cannot fix things on their own will have to hire a contractor.

Neighborhoods have a tendency to depreciate over time. This can also be costly when property values drop.

Property owners should also keep in mind that real estate will not sell in a day. Since it’s not considered a liquid asset, it could take several weeks or months to unload. This could prove problematic if an emergency situation arises.

One of the worst aspects of owning a rental property is the role of the landlord. This can be a headache if you are dealing with difficult tenants. Laws are written to protect both the landlord and the tenant. This often ends with property owners feeling that they are being treated unfairly. Tenants can stop paying rent and even destroy property, which ends in eviction proceedings. Evictions can take months and the property owner may still never recoup their money.

For individuals interested in purchasing rental properties due diligence is required. While it can potentially provide you with a nice income stream, it can also be a headache if not provided with the right information.