Pros and cons of owning an income property

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Income property

The idea of regular return beckons many people into owning income properties. However, as there are advantages if owning such properties, there are downsides too. 99acres delves into the pros and cons of income properties.

Owning a second home has become a popular trend these days. People are investing in second homes not only to relax and rejuvenate during vacations but to leverage it by generating additional income. Whether it is an apartment or a duplex, property owners are acceding to the idea of renting as it assures regular return. At the same time, presence of tenants implies timely maintenance and safety of the property.

Although renting a property and collecting cheques may appear to be a hassle-free way of making revenue, however, in reality, pay cheques associated with rental properties are not easy to come by. While rental property assures big returns, it is imperative to understand that owning and managing a rental property is a demanding job.

Before you dive into the world of rental properties, you should be aware of the pros and cons involved before you consider such an arrangement.

Pros

Monthly income

The biggest benefit of owning a rental property is that the tenant will provide you with a regular income. The pay checks can be used to offset monthly expenses such as mortgage, maintenance charges, travelling cost and personal outlays.

However, you should not just dive into the market expecting those results. Find out the cost of regular maintenance of the said property and rental rates in the area to get the maximum benefits from the investment.

Value appreciation

Since you own the property, you stand to gain from capital appreciation in the long run even if the property does not undergo any change. According to Rohan Agrawal, MD Geopreneur Group, “As real estate is one of the only investments that grows with time, owning an income property can prove to be sound decision. While earning a rental income, the property will also register a capital appreciation.” Though the rate of capital hike may vary according to the area in which the property is located and the time span of the investment, there are chances that you will accrue good returns of the location is ideal and time horizon is long-term.

On the other hand, if you have a home located at a holiday destination, you can leverage it further by leasing it out to tourists while keeping the property accessible for yourself during the rest of the time, adds Agrawal.

 Independence

Renting business gives you a sense of freedom and relief. You are your own boss and not accountable to anyone else. However, at the onset, reaping profits might appear to be a challenge but in the long run, it would provide higher returns as compared to other sources. There are many savvy investors who rely on their rental income as their means of support.

 Cons

Tenant risk

Renters have few reasons to maintain the property. The idea that they do not own the property demotivates them from regular upkeep and maintenance. Many times, renters are financially unsound, due to which they either delay their rents or do not pay the due amount at all.  At the same time, there is also a risk of not having tenants at all, which implies that there will be a period when you will not earn any rental income.

In addition, the activities that undertake in your premise while it is leased out to the tenant can affect your property’s reputation. It is thus essential that the tenant is credible and has a sound background. To avoid any risks, a landlord should conduct a thorough background check and police verification before handing over the property to the tenant, states Agrawal.

Taxes and fees

Regardless of the fact that you have tenants in your home or not, certain expenses are unavoidable such as property tax, insurance fees, water tax and others. These are steady costs which will directly cut into your savings, negatively impacting your finances.

24/7 Availability

While it is not a nine to five job, you have to be available 24/7 to face any problems being encountered by the tenants. You need to devote a considerable amount of time to the property for its repairs and maintenance, interact with tenants and resolve their problems.

Not only this, if your tenants decide to vacate the place, scouting for new and credible tenants can be another challenge to surmount. Though you can do away with the problem by hiring a broker service but make sure you are ready to bear an additional cost.

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