![]() Owning an investment property is not much different than owning your own home. When you factor in property taxes, insurance, and other fees, such as a Homeowner’s Association (HOA) fee or repair costs, your expenses can add up. While owning rental property may be considered a passive investment, it’s a hands-on job for a landlord.Įxpenses: Owning property costs more than the purchase price. Time and management: Managing tenants, learning landlord-tenant laws, communicating with contractors, handling maintenance-this all takes time and energy. Unpredictable tenants: As mentioned above, if a tenant suddenly stops paying rent, damages the property, or moves out without notice, you may experience a temporary income loss. Lack of diversity: As an investment, real estate is a concentrated asset, which means if something happens to it, your money is tied up in that one investment, as opposed to several small investments. Liquidity: Depending on the market, your rental property can take a long time to sell. Other potential downsides of investing in, and managing, rental property may be: Because you may be paying a mortgage with rental income, unexpected changes, such as low rental demand or unreliable tenants, could affect your ability to make monthly mortgage payments. ![]() When you purchase an investment property, the initial cost of purchasing the property is high, even without any additional costs to fix up the space for tenants. Nothing is without its downsides, and that goes for renting out a property as well. The Downsides of Owning an Investment Property While you won’t get rich overnight, it’s a wise way to invest in your future. The income you generate from a rental property is also more predictable than other investments, such as a traditional business, because a rental payment provides consistent cash flow that is higher than a typical dividend.Īs you can see, owning a rental property has a high potential for profitability and long-term success. Each month you receive a rental payment, the money you make after paying your mortgage, utilities, and other bills is yours. Although property value depends on supply and demand, real estate purchased in the right location can sell for a decent profit.Ĭash flow: Renting a property provides regular cash flow for as long as there is a tenant paying rent. When it comes time to sell, sellers pay taxes on the appreciation, also called capital gains. Property appreciation: It’s generally safe to say that the value of real estate increases over time, meaning that it appreciates. Depreciation reduces the amount of tax you pay on rental income, but may increase your capital gains tax after selling the property.Īlong with depreciation, landlords can also claim many deductions for their business, including property insurance, mortgage interest, advertising, property tax, maintenance fees, and much more. Rental properties also benefit from depreciation, which can be deducted from your taxable income from the rental property each year to account for wear and tear to the property. Tax perks: Rental property isn’t subject to self-employment tax like other home businesses unless you’ve formed a corporation, in which case you would file corporate taxes. It also offers several other benefits, including: Investing in a rental property is one of the smartest ways to generate stable, long-term income. ![]() The Benefits of Investing in a Rental Property ![]()
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