Have you thought about investing in a rental property? If so, you’re definitely not alone. Over the years, rental properties have become a popular and rewarding investment choice for many investors. Similar to any investment, however, there are certain risks associated with owning rental properties that one should take into consideration.
If you’re on the fence about whether owning a rental property is right for you and your personal financial goals, consider the following pros and cons of this investment strategy.
Pro: Passive Income
One of the most attractive benefits of owning rental properties is the potential to earn passive income or, in other words, a recurring income that requires relatively little effort to maintain. Ideally, the income you earn from your rental should offset the property’s mortgage and any managing expenses you may incur. The passive income earned from your rental property can then be put towards your savings, your children’s college funds, renovating the property, new investments, and more.
Con: High Entry and Maintenance Costs
Investing in a rental property is a significant financial commitment and should only be pursued once you are financially ready. Typically, investment properties require a larger down payment than primary residences, and they also frequently come with stricter borrowing requirements. You will also need to ensure you have plenty of funds available for regular maintenance and any needed repairs.
Pro: Potential of Property Appreciation
Historically, homes in the U.S. tend to increase (or appreciate) in value over the long term. If you’re hoping to eventually sell your rental property for a profit, make sure to do ample research before purchasing. Property appreciation typically depends on two things: the local real estate market and improvements made to the property. Some improvements you can make to increase the value of your rental property are bathroom upgrades, kitchen remodels, replacing windows, or adding a porch or patio.
Con: Risk of Bad Tenants
While there are many great tenants out there, you may run the risk of running into a few bad ones when renting out a property. Whether they are difficult, needy, late on rental payments, destructive of the property, or break their lease, bad tenants can definitely cause headaches and concerns. To help minimize the risk of difficult tenants, utilize a screening process.
There are several other pros and cons to keep in mind when it comes to purchasing a rental property. Just as with any other financial commitment, you should take ample time to think through and research before investing. If you think you’re ready to jump into this investment strategy, the experts at Coastal Custom Mortgage can help you find the right mortgage loan program for you and your unique financial needs and goals. Contact us today to get started.