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Biggest Pros & Cons of Becoming a Landlord

Biggest Pros & Cons of Becoming a Landlord

There are lots of reasons to consider becoming a first-time landlord. Maybe you’re looking for another source of income. Or, maybe you’re having trouble selling your home, so you’re considering renting it out. No matter your situation, there are a number of benefits and drawbacks you need to consider before you decide if it’s the right job for you. Let’s take a look.

The Pros

  • Extra Income:
    A steady source of income is the most appealing part of managing a rental. If you’ve done the cost calculations correctly, your rental income will cover the mortgage and operating expenses while allowing you build equity and turn a monthly profit. There is also the possibility that the property will appreciate, allowing you to make more money over time.

  • Tax Benefits:
    Rental income is taxable, but the deductions you can take while renting out a property may help relieve your tax burden. Deductible expenses may include property repairs, building and property maintenance, insurance, mortgage interest and account processing.

  • Minimal Time Commitment:
    Many landlords are able to have full-time careers in addition to owning a property, especially with a little help. If you are concerned about the time commitment associated with property management, you have the option of hiring a property manager to take on responsibilities that occur during business hours for a portion of your rental income.

The Cons

  • Appreciation is Not Guaranteed:
    In a perfect world, your rental property will continue to grow in value over time. However, the real estate market can be unpredictable, and you could end up losing money on your investment. Rental property owners in California are on a good trajectory, because demand has been high and is showing no signs of dwindling any time soon. To avoid financial pitfalls, you need to keep an eye on your local market and make sure you are aware of supply and demand for rentals as well as any changes predicted to occur over the next few years.

  • Start-Up Costs:
    Buying an investment property is only the first step in getting a rental ready for tenants. If you buy an older building, you may need to make significant repairs and updates before you can begin advertising it. Each state also has laws to protect tenants that you must abide by. As a landlord, you will be required by law to install any necessary safety features in each rental unit.

  • Problem Tenants:
    Tenants who don’t pay their rent on time create huge headaches for landlords. When you have problem tenants, you may have to get a collection agency or lawyers involved in order to recover your lost income. You have to be ready, willing and able to deal with these situations when they pop up.

  • Variable Maintenance Costs:
    As with any real estate purchase, there may be hidden issues with your rental property that can lead to major costs over time. As an owner, you’re on the hook for any bad plumbing, roof leaks, or safety code violations that come to light after the purchase has been made. These problems have the potential to eat up your rental income, but it’s a risk that every real estate investor must take. Make sure you have extensive inspections done prior to purchase to mitigate this risk as much as possible.

Do you have what it takes to own and manage a rental property? Now you can weight the pros and cons to determine whether become a landlord is a good fit for you.

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