Many people looking to make some extra income turn to real estate investing. The idea of owning a second property which they rent out to tenants is a hugely appealing one. You gain a steady stream of income for minimal responsibility, as well as a solid asset that appreciates in value over time.
But being a landlord is not always all it’s cracked up to be. There can be enormous benefits if you make sound decisions and find the right tenants, but there are also risks and downsides as well. Before jumping straight into the world of real estate investment, it would be wise to appraise yourself of all the facts.
To help you decide whether owning rental property is the right path for you, here are all the pros and cons you need to know about.
- Capital Appreciation: Generally, house prices are trending upwards, and real estate is a relatively safe investment. If you pick the right property in the right location, you can be comfortable in the knowledge that you own a lucrative asset that will increase significantly in value over time. If and when you decide to sell it off in the future, you stand to make a tidy profit.
- Tax Benefits: Landlords can enjoy unique tax benefits when it comes to owning rental properties. You will be able to benefit from a variety of tax deductions, as well as the fact that rental income is not subject to self-employment tax.
- Passive Income: One of the most appealing things about owning real estate is that as long as you have tenants, you’ll have money coming in. Many landlords rent out properties in addition to holding full time jobs, allowing them to boost their finances.
- Low Maintenance: Once you have purchased your rental property and found trustworthy tenants to move in, there is not a huge amount of heavy lifting to be done. You will need to conduct occasional checks and ensure the property is in working order, but your responsibilities will be minimal. And if you would like to be completely hands-off, you could even enlist a property management company to take care of everything for you.
- Initial Investment: Buying real estate requires an initial investment, so you need to have enough starting capital to make the first move. As well as a down payment to secure the property, you’ll also need to cover any essential repair costs, taxes, insurance, and mortgage payments. There are multiple finance options available, such as hard money bridge loans, but you need to ensure you are in control of your finances before you commit.
- Long Term Strategy: Real estate investment won’t make you a great deal of money overnight. It can often take years before you make a profit, so if you’re looking for a quick win you might be better off investing elsewhere.
- Risk: As with any investment, there is some element of risk. You could end up with troublesome tenants, or have to fork out for a costly repair job. Although real estate is often a safe investment, it’s wise not to get complacent and be prepared for anything.
Hopefully these points have equipped you with the knowledge to decide whether or not real estate investment is right for you. Good luck!