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All About Owning a Rental Property– Part 2

Rental real estate is all about property management. From managing a healthy relationship with tents to handling cash on a monthly basis, owning a rental property comes with certain pitfalls.
Looking on the brighter side, rental real estate can be dream come true for investors. The best thing about such property is the positive cash-flow it generates on a monthly basis.
Rental property, if managed properly, can yield great returns and reward its investors in a variety of ways.

Rental Property 101

Rental property is included in the portfolio of every successful real estate investor. It involves a hands-on approach and is considered great for people with DIY and renovation skills. Similarly, if you think you can deal with tenants without any trouble, then this type of investing is for you.
Since rental real requires you to purchase a property and then make it ready for your tenants, you will need capital for it. Similarly, you will also need money to cover maintenance costs and backup if their property stays vacant for months.

Benefits of Owning a Rental Property

The benefits of owning a rental property are numerous. Not only you can increase your income but also manage to build a strong investor portfolio. Here are some benefits of owning a rental property.

  • You can get a higher price when you sell it—called Appreciation.
  • You can ask for tax cuts based on Depreciation—damage of building over-time.
  • You can use the 1031 exchange option.
  • You can generate cash-flow on a monthly basis.
  • You can add multiple income streams by getting a second mortgage on this property.

The best thing about the rental property is the positive cash flow you get each month. Other than that there are certain pitfalls that you need to be careful of.

Drawbacks of Owning a Rental Property

Investment in real estate is all about risk. You never know whether you will be able to get tenants to stay in the first place. Here are some of the drawbacks of owning a rental property.

  • Hands-on Investment—rental real estate is hands-on investing. You can only jump into this business if you have time on your hands. If you don’t have the capital, you can ask for help from a property management company.
  • It Takes a Lifetime—paying off the mortgage on the rental property takes almost an entire lifetime. Your owner status will turn into the landlord and you will be responsible for paying the mortgage, taxes, and property maintenance fee. Often, the landlord charges enough rent to cover all the above-mentioned expenses but there are times when things don’t work out.
  • The Long Wait—it is a fact that appreciation takes place and the value of the land increases eventually. But if things don’t go smooth and you want to sell it out, it can land you in a predicament. According to the US Census Bureau, the real estate prices increased from 1940 to 2006, but it took a hit in 2008. What if a similar event is to take place and things fall apart. That’s the reason the wait is too long and you shouldn’t keep all your eggs in a single basket.
  • Vacant Property—if your rental property does not get a tenant, you will face issues. A monthly mortgage payment will be drawn from you and there will be no shelter for you to hide. That’s why choosing a place where the vacancy rates are high would be a great investment.
  • Bad Tenant Dilemma—if by chance you get a bad tenant who keeps on damaging your property, you will eventually be drained out of money on the maintenance cost front. Therefore, it is necessary that you make sure you and your tenant are on the same page.

Arguably, the biggest drawback of owning a rental property is the amount of time it requires from you. There are other investment channels that allow you to be better off and indulge yourself in other chances.

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