It can be financially rewarding to own a rental property. If you happen to be exploring this real estate option as an investment, there are some pros and cons to it. To some people, buying a home or apartment for long-term appreciation can have ups and downs. For instance, the fluctuating housing market can really make or break this type of investment. Listed below are some pros and cons for you to consider before getting into the real estate business.
Benefits of Rental Properties
- Tax benefits as the IRS allows you to deduct some of the expenses connected with rental properties
- Seasonal rentals can be used up to 14 days a year for yourself and still deduct expenses
- Exchange 1031 means you can sell your property and invest in something similar without having to pay capital gains taxes
- You can rent an area of the home or a room in the home as a rental and write off a certain percentage of the mortgage interest as well as other expenses
Cons of Rental Properties
- Lack of liquid meaning real estate isn’t a liquid asset, meaning sometimes it can take months to get a sale
- Rising taxes and insurance premiums means the interest and also the principal of the mortgage may be fixed but keep in mind there’s no guarantee that taxes won’t rise
- Difficult tenants can make it hard to have a rental and for instance they could be paying rent late and be needy or otherwise demanding
- There may be a neighborhood decline, and this can make your investment depreciate over time meaning pay attention to where you are investing
- The tax code could change in a few different ways that can either reduce or even eliminate some or even all of the tax benefits
- Being a landlord is not for everyone and this means some people are afraid to raise rent when needed and this can lead to conflicts since it’s hard to be firm with them
- When it comes to upkeeping a property, this can take a lot of time that a lot of people just simply don’t have especially if they are already working a full-time job and have their own home to maintain
If you plan on buying or turning your home into a rental property to make some money, make sure you look into mortgage rates. If you’re a landlord periodic increases in rent are one particular way of offsetting inflationary increases in the upkeep of property.
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