Issues to consider before purchasing a rental property

On Behalf of | Sep 15, 2021 | Real Estate Transactions | 0 comments

Many people like the idea of diversifying their investment portfolio by buying a rental property. They may have a lot of stock, which is great and earns returns, but it also means that the market ebbs and flows greatly impact finances. On paper, buying property can seem like a great idea because there is cash flow, and rental income can cover costs and even turn a profit. Perhaps owners can even use that accrued rental income to buy other rental properties.

However, before jumping into rental property deep end, let’s weigh the pros and cons of becoming a landlord.

The benefits of being a landlord

The previously mentioned extra cash flow and income can be very alluring to some. Moreover, along with the rental income, the property’s value may greatly increase as the neighborhood becomes more desirable. Even if the property maintains a steady value, the seller may have offered the new landlord a below-market deal.

There are also tax benefits in becoming a landlord. These can include write-offs for:

  • Depreciation
  • Mortgage interest
  • Business deductions
  • Costs associated with maintaining the property
  • Travel if the property is in another state
  • Running the business out of the home or property, and thus writing that off

The downside

The financial markets go up and down, but investors can be as active or inactive as they want to. Some potential landlords will not like the time and effort it takes to operate a rental property and keep it well maintained. There can be additional headaches if there are problems collecting rent from tenants or evicting them, or there may be a dispute with your property’s neighbors. Of course, owners can hire management companies, but that will cut into the profits.

It’s your call

Many landlords create a plan that works for them. So, it depends upon individuals weighing the above points. One more benefit not mentioned above is that may be that it could be an ideal side hustle or new career after retiring, particularly if you like the idea of staying busy (but not too busy) while working for yourself.