Are you interested in becoming a landlord? The idea of owning rental property excites many people because it promises the ability to use a steady income to build equity in a residential property. Here are the pros and cons of owning rental property.
What are the Pros to Owning a Rental Property?
Buying a rental property is often an excellent financial decision. Owning a rental property brings the potential of a steady income stream, tax benefits, and the ability to build equity. Let’s look at the significant benefits of purchasing a rental property.
It’s Easy to Buy Right Now
As a buyer, this is a great time to buy a rental property. Interest rates are still low, thus making monthly mortgage payments easier.
Landlords can take tax deductions for many of the expenses involved in maintaining their rental property. Examples include:
- Necessary repairs
- Travel to and from the rental property
- Trash removal
- Pest control
- Yard maintenance
- Homeowner Association Dues
- Mortgage interest
The primary goal of owning a rental property is to build equity in a piece of property. Assuming that you’re able to rent the residence for more than the cost of your mortgage payment and expenses, owning a rental property is an excellent investment.
What are the Cons of Owning a Rental Property?
As with any investment, there are potential problems that come with being a landlord. If you’re not careful, being a landlord can mean losing money and plenty of legal hassles. Consider the possible downsides of rental property ownership.
Rental Market Volatility
Your rental income will depend, to a large extent, on the health of the real estate rental market. For example, if the economy slows and there is less demand for rental housing you might need to lower the rental price to attract a renter. It is possible that you might not receive enough money in rental payments to meet your expenses. Make sure that you are not dependent on a certain level of rental income to meet your costs.
Responsible for Repairs
Imagine that it’s Super Bowl Sunday and you’re relaxing in front of the television munching on snacks with friends. Your favorite quarterback is leading a spectacular comeback when your tenant phones to say that the heat in their rental won’t work and the temperature in their home is falling fast. Welcome to one of the downsides of being a landlord. You are responsible for fixing the heat immediately.
As a landlord, it’s your job to make sure that the rental is in livable condition at all times. Expect, unfortunately, for vital systems like the heating, air conditioning, and plumbing to break down at inconvenient times. Also, prepare to pay a premium for the repairs if they occur on holidays and weekends.
When you begin dreaming about owning a rental property, it’s tempting to believe that your tenants will never cause you a moment of concern. In reality, the proverbial nightmare tenants do exist. What’s more, it isn’t a simple process to evict a problem tenant. In fact, in addition to being a lengthy process, removing a tenant can cost a landlord several thousand dollars.
Should You Get Professional Help When Purchasing a Rental Property?
Yes. Smart investors realize that making a successful real estate investment begins with choosing the right property and paying for it with the best loan possible. Using an expert real estate specialist and an experienced lending specialist to buy a rental property is a sage decision.
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Getting a loan for a rental property is similar to qualifying for a home loan in some ways. For example, a lender prefers to loan money to borrowers with high credit scores, and so they offer those borrowers the lowest interest rates. You’ll pay more with a credit score below 740. A lender also examines your income sources and financial situation in determining your eligibility for a loan.
However, there are essential differences between a loan for an investment property and a home loan. For instance, you’ll most likely need to come up with at least 20- 25% of the purchase price for a down payment. Lenders also often require that you have enough money saved to cover all of your expenses for at least six months.
Hire a Real Estate Agent
Did you know that there are real estate agents who specialize in helping individuals buy rental properties in their area? These real estate specialists understand the unique challenges and opportunities that come with buying a rental house. Make sure that your real estate specialist is an expert in working with their client to locate outstanding properties.
Homes for Heroes provides savings to heroes on a home throughout the United States. We have a nationwide network of affiliate real estate specialists who are experts in helping you buy and sell a property. When you choose to work with a Homes for Heroes real estate specialist, you’ll receive a Hero Reward check for 0.7% of the home purchase price a few weeks after closing.
Some of the factors to consider when examining potential properties include:
- Single house versus multi-residence
- Purchase price
- The prospective pool of renters
- Average rental rates
Don’t fall in love with a potential rental property. Buying a rental property is a business decision, and you need to make sure that it makes financial sense before you buy a property.
Lastly, now is a fantastic time to consider investing in a rental property. When you’re ready, sign up to speak with a Homes for Heroes real estate specialist. They will answer your questions, guide you through the home buying process and get you into your new home with a significant check from Homes for Heroes.