Advantages and Disadvantages of Investing in Rental Properties

Investments in rental properties provide a wide range of financial benefits but just like any other investment vehicles, once mismanaged the investment can be a total failure. There are a lot of things that must be considered and weighed before investing in rental properties. There are many advantages and disadvantages that should be scrutinized and shouldn’t be taken for granted.

If you’re planning to buy and hold investment properties, this article will help you in understanding the different pros and cons with regards to the business of investing in rental properties.

The Pros

One of the biggest advantages in investing in real properties is that the owner has total control over the rental property. Unlike stocks and other equity securities, investment in rental properties allows you to have a control over the management of the property, you are the one who has the final say on what to do with it.

You can refinance and restructure the rental property to further increase the rental income or you can hold the property and sell it once its value appreciates.

Another major advantage of holding investments in real properties is the constant appreciation of the rental property. The value of the rental property doesn’t depend directly on external factors such as the stock market or bond market.

Over time, the rental property will inevitably increase its value.

Investing in real properties can also generate a continuous stream of passive income. Investment in real properties also does not require close supervision and only requires minimal operating expenses.

Generally, rental properties offer higher yields compared to stocks and bonds. Returns on investment can range from 100% to even 500%.

The Cons

Probably the biggest factor that prospective investors see in rental property investments is its long term stature. Rental properties provide passive income which is not much in the earlier years but can be lucrative in a long-term basis.

Some investors just don’t have the patience to hold a rental property for a considerable amount of time. The big time earnings in rental properties won’t be realized until the onset of its fifth, sixth or seventh year.

There are also the ever increasing taxes that rental property holders need to deal with. In addition, holders of rental properties might not be that lucky in landing the perfect tenants. They should be ready for the worse case scenario, eviction cases among others.

Rental properties may also remain vacant for some time making it more of a burden than an investment vehicle. Rental properties also are not liquid investments and the buying and selling phase of rental properties may took some time.