Investing in a rental property is an excellent way to secure an additional income stream. As with any investment, there are pros and cons of rental properties you need to know about before diving in.
Yes, rental properties can be a great source of passive income, but that passive income requires a lot of diligent work. Landlords don’t just sit and let the money roll in. A lot of research, maintenance, and tenant satisfaction is required. If you own a rental property, you may want to evaluate the pros and cons of being a landlord and whether or not it’s worth it for you.
Keep reading to find out our list of pros and cons.
Pros of Owning a Rental Property
As with any investment, if everything lines up well, you can make a lot of money from a rental property. Nevertheless, it’s important to be well aware of the pros that come with your investment.
Income From Renters
The most significant and most obvious benefit of owning a rental property is that the renters will provide you with a direct income stream. Those monthly rent checks may even go straight into your business account, helping you offset any expenses for the month.
For example, if you own a house that you rent out for $1,000 per month, that house when fully occupied, will put $12,000 per year back into your accounts. It’s hard to argue with a direct income stream like that. However, those kinds of figures are optimistic, and you shouldn’t just dive in expecting those results.
Income From Property Value Growth
In addition, since you own the property, you stand to gain an increase in the property value over time due to changing demands in the area, even if the property doesn’t undergo any changes.
This is going to be a variable thing and depends on numerous factors such as the property area. In some regions, the value may rise significantly over a few years, while it may remain flat in other areas. Ideally, this value growth holds pace with inflation at a minimum.
The other factor that you should consider is your sweat equity is likely to add additional value to the property as you maintain and upgrade it. Doing simple things like repainting the home, adding new siding, refinishing the inside, doing some basic landscaping to the yard, and so on will add value to the house without high financial cost.
Not only will this allow you to charge more for rent, but it will also increase the value of the property itself should you choose to sell it in the future.
The Cons of Owning a Property
On the other side of the spectrum, there are several disadvantages to owning a rental property. Individually, these disadvantages may seem relatively minor on their own but add up to a high cost in the long run.
Concentration of Assets
One drawback to investing in a rental property is that it is a serious investment of their assets for most people to own rental property fully. It would take a significant amount of the average American’s net worth to own their property fully.
The problem is that your portfolio is not diversified at all. That investment is in a specific house in a particular city. If the market happens to crash, you can lose a lot of money. By owning a rental property, you’re tying yourself to the local real estate market in a tight way.
To some, a concentration of assets is not a wise investment strategy. However, the more wealth you have, the less this becomes a factor.
Tenants are never a guarantee to pay their rent. Even in the best of times and even with the seemingly best tenants, that revenue stream is far from guaranteed. Sometimes, you’ll get a great tenant that pays their rent on time for years, but that could change at any time. Some tenants won’t pay regularly, and some may not pay at all.
Those who don’t pay can be evicted, and you’ll be out several months of rent and have to stress about finding another tenant to replace them. The risk of not having a tenant at all can be costly, as you’ll have a period where the property generates no rental income.
Taxes, Fees, and Insurance
Regardless of whether you have people in the house or not, you’ll still face the cost of property taxes, the cost of insurance on the property, and the cost of any homeowners association fees that come with the property. Those bills will be expected to be paid even if you have no tenants.
These are ongoing expenses that you’ll know about in advance, but no matter how you look at it, it’s a cost that cuts into your profits. These costs are also not small; insurance on rental properties is usually around twenty-five percent higher than for an average homeowner’s policy. Property taxes are nothing to laugh about either.
Even in the most “hands-off” of situations, you’re still going to have to dedicate a fair amount of your time to your rental property. Whether it be taking care of maintenance issues or interacting with tenants for minor service calls or repairs, you’ll find yourself having to do paperwork now and then.
You could work with a property management company, but that’s another expense that will cut out from your profits. Be ready to dedicate a good chunk of time to manage your property otherwise.
Not Interested In The Work? Sell To Seattle Homebuyers
As you’ve come to know, owning a rental property is no joke. Not only does it take time and money to maintain and manage, but it can also be stressful. However, you have options available to you. Selling to a home buyer company can offer you an easy way out of owning a property that may not be serving you much benefit.
At I Will Buy House, we are Seattle home buyers looking to help homeowners find solutions to their problems in Seattle. If you own a Seattle rental property, we can buy your house – even if it’s got, tenants.