Pros and Cons of Owning a Rental Property

Owning rental property can seem like a great idea for a stream of investment income. However, there are pros and cons to being the owner of a rental property. The following describes theĀ positive and negative aspects of this investment choice.

Of course, the first and foremost advantage is a stream of rental income. On top of this, the owner can also enjoy the property appreciation. A rental property can be a great way to build personal wealth.

The tax advantage is wonderful. As the rental property appreciates, the owner can refinance the mortgage and pull out cash tax-free. Capital gains taxes can be avoided by switching investment properties every several years. Don’t forget the tax deductions! Mortgage interest, insurance, property taxes, and maintenance are all tax deductible.

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Rental properties can provide the owner with a free vacation from time to time! Purchase a rental property at a vacation spot, and keep it free for a few weeks each year for your own personal use. You can also save it as a retirement property or permanent vacation home. What a great way to have the perfect retirement home or vacation home while making some extra money in the process.

While there are some excellent advantages, owning a rental property does not come without disadvantages too. First, being a landlord is a huge responsibility, and may even become a burden. Basically, you are “on call” 24/7. Tenants will call you at any time of the day or night for emergencies, such as a broken air conditioner, or a washing machine in need of repair. As the property owner, you must respond to these issues in a timely manner. This includes while you are on a family vacation, not feeling well, swamped at the office, or just enjoying some quiet time.

Not every tenant is going to be responsible. In a perfect world, the landlord would collect a rent check on the first of the month from the renter with no delay. The check would clear, and everyone would happily go on with their lives. This is not always the case. Someone can move in, lose their job, and not pay rent. Aside from lost cash flow, now the landlord must deal with the eviction process. Or, they can just be irresponsible and not pay rent. Either way, it becomes a major financial headache for the landlord.

Even worse is not having a renter. Depending upon market conditions, your property can sit vacant for awhile. And you are still responsible for monthly mortgage payments, taxes, and maintenance. This can be a financial burden on the landlord, especially when there is no rental income.

You need to have capital available at all times when you own a rental property. Aside from the 20% down needed to make the purchase, cash must be available in case a problem arises. Something could go wrong with the property, costing hundreds or thousands of dollars, and the landlord must fix it in a timely manner, no matter the cost.