Pros and Cons of Investing in Rental Properties

Investing in real estate is a great way to create a stream of revenue.  Additionally, real estate can offer great tax benefits and can build equity, which you can use for other investments.  However, if you invest in real estate, you have to have a clear plan of what you want to do.  Are you going to flip the property?  Are you going to live in it?  Are you going to hold it and rent it out?

If you decide to rent out your investment property, you could be creating a stream of positive cash flow.  As such, each month, after you pay all of the expenses of the rental property, you have will excess cash to use for whatever you want.  The monthly rental income is probably the greatest benefit of owning a rental property.

In addition to the rental income, your tenant will be paying off your mortgage for you.  As such, the property will be building equity that you can use as collateral to buy another property, or you can cash out the equity and use the money for whatever you want.

In addition to rental income and equity, rental property can offer some tax benefits.  You may be able to deduct mortgage interest and property taxes.  Additionally, you may be able to depreciate the value of the property for tax purposes.

However, although these are great benefits, you have to be prepared to deal with a rental property and your tenant.  The most important thing to remember is that you own the property.  As such, if something goes wrong in the house, it is up to you to make sure that the problem is corrected.  Even if your lease agreement requires a tenant to fix the problem, you still have to make sure that the problem is resolved because you are liable if there is a building code or some other local legal problem.

Additionally, your rental property can be profitable only if you have a tenant and that tenant is paying rent.  Banks do not care if you are having money troubles or if your tenant missed a rent payment.  You are liable for the mortgage.  As such, if your tenant fails to pay you, you still have to pay the bank.

Evicting a tenant can also pose a problem.  If a tenant fails to pay rent, there are certain legal procedures you have to follow.  Simply changing the locks is usually a violation of the law.  As such, in finding a tenant, you should spend the extra money to do a background and credit check.  Additionally, you should ask for references.

As mentioned above, owing a rental property can create tremendous financial opportunities, but you have to be ready to deal with the problems that may arise or your real estate investment dream will quickly turn into a nightmare.