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Are you thinking about dipping your toes into the exciting world of real estate? It can be a lucrative route to go down. Depending on how well you do, you can make it into a part-time or full-time gig.
Despite the steady income you can receive from it, there are plenty of risks involved. It requires you to pour a lot of assets into something that a lot of people fail at.
These are only some of the pros and cons of rental property. Check out this guide for a complete list of things that you should consider before you start investing.
Benefits of Investing in Rental Property
First, we’re going to talk about why rental property investments are a good thing.
Besides providing you with a steady stream of income, they can also diversify your portfolio. You’ll also have some control over your investment, and you’ll have a lot of financing options to choose from.
Steady Income
Between taking out a loan and sprucing a house up, it’s going to feel like there are no financial investment property advantages. We’re here to tell you that you’ll just need to be patient.
Everything will change once you get a few tenants occupying the place. As long as they pay you enough to offset your mortgage each month, you’ll be in the positive as far as money goes.
Portfolio Diversity
When it comes to investing, you never want to put all your eggs in a single basket. It’s too risky.
You need to have a little diversity in your portfolio instead of filling it with bonds and stocks. That’s something that real estate can give you.
Investment Control
Out of all the different types of investments out there, real estate gives you the most control. You’re the one that gets to screen the tenants and decide if they’re the right fit for your property or not.
You have the freedom to decide if you want to use the property as a short-term or long-term rental. If you want to sell the house at any point in time, that’s all up to you.
Plenty of Financing Options
Buying a residential property is expensive, but it’s not as difficult as you may think. As long as you meet the right credit requirements, there are plenty of loan options out there that you can take advantage of.
If you don’t have a good enough credit score or you have too much debt to take out another loan, you can try house hacking.
It will require you to rent out part of your primary residence to another person. You can use the money you gain to save up to invest in a house later.
Risks of Investing in Rental Property
Learning how to become a landlord isn’t for the faint of heart. There’s a lot of responsibility involved.
Having a bad tenant can set you back pretty far financially, and making the downpayment on a property isn’t easy.
Finding Good Tenants
The first struggle of being a landlord is finding good tenants. Even if you have the most thorough screening process in the world, it may not catch everything.
You could still end up with a tenant who never pays their rent on time. Some will ride things out until you take them to court over the missing money, which will put extra financial stress on you.
They could trash the place so bad that you have to spend thousands of dollars to fix it up for the next tenant. Collecting a security deposit from people before they move in will cut back on some of the property damage, but it’s not a guarantee.
Financial Risk
Taking out a mortgage and investing in a home is a huge financial sink. You can’t guarantee that you’ll ever see the money again once it’s gone.
If something happens in your neighborhood, such as the crime rate going up, it will be hard for you to find someone who wants to rent out your home.
During times when your house is unoccupied, you won’t be receiving any income. You could go months paying the mortgage on a property that you’re not getting anything out of.
Credit Score and Downpayment Requirements
There are certain credit requirements that you’ll need to meet before any bank will give you a loan. If your score is any lower than 620, you’ll have to bump it up before you stand a chance.
Your credit score isn’t the only thing that you’ve got to worry about. In most cases, you’ll need to have at least a 25% downpayment.
Responsibilities
Landlords have a lot of responsibilities. You’ll have to schedule repairs, collect rent, communicate with your tenants, work with vendors, and stay up to date on all the latest real estate laws.
It’s a lot of work, which is why many landlords hire a good property manager. Getting a company onboard might be expensive, but they’ll take care of everything for you so you can relax.
Learning the Pros and Cons of Rental Property
As you can see, there are a lot of pros and cons of rental property. It can be a lucrative venture, but if you fail to account for all the risks, you could end up losing a lot of money.
There are tons of responsibilities that landlords face every day. If you don’t think you can handle it all on your own, consider hiring a property manager to make things easier for you.
For more tips that will help you become a successful investor, visit the Real Estate section of our blog.
