Investing in a rental property can be a very good long term investment. This comes with a couple of drawbacks. Investors will need to have a lot of patience, and be prepared for a few years of paying off expenses before they can make money.
Here are the pros and cons of owning a rental property:
1. The property is bound to increase over time. Money tied into the investment is not going to be lost; unlike stocks which are quite unpredictable.
2. The rental income helps the owner pay off the mortgage, and also helps with other expenses such as levies and rates. When the mortgage is paid off the rental money can be utilized to pay off other expenses or the money can be further invested.
3. Buying property for investment is a very safe way of investing. The owner is sure to come out with a profit in the long term, and is bound to not loose out.
4. Buying many rental properties can offer a person an early retirement or a passive income for the future.
1. Rental properties can be expensive to maintain. There will be hidden costs involved such as repair work, lights, water and levies.
2. The owner will also have to pay tax on the rental income which will be added to his/her salary in most countries.
3. The rates are charged at a commercial rates in some countries if the property is a rental.
4. Tenants can default on the rent and damage the place. It is difficult to evict tenants in most countries. The case will have to be taken to court and it could take months to evict the tenants. Most owners end up without a cent, and in most cases the tenants will damage the property. The owner will end up forking out thousands of dollars on repair work.
5. The rental paid from a rental unit does not fully cover all expenses, and the owner will have to pay a certain amount from his pocket to cover all expenses which includes the mortgage. Most investors will have to seriously think about planning financially before buying a property, and cannot expect the rental to cover all expenses.
6. Due to recession; housing prices fall, and the housing bubble during good economic times bursts, causing prices to slump.
Investors need to think carefully before buying any kind of rental property. This is a very big decision and needs to make the investor money in the long run. Investors need to invest wisely, and think of long term benefits when investing in property.