Think back to when you were a child and all the jobs you pictured yourself working one day. Maybe you wanted to be a doctor, a famous painter, or a teacher molding the minds of children. But did “landlord” ever come to mind?
For many people, being a landlord and owning rental property in addition to your primary homeis a logical and profitable investment. But for others, taking care of more than one property is too much work and stress to handle.
Check out these risks and rewards of owning rental property.
Risk: No Qualified Renters
It’s very possible for your home to sit vacant for months at a time if there are no qualified renters in the area. And once you do find a renter, there are no guarantees that they will take care of and respect the space they’re living in. In addition to the challenges of finding a good renter in the first place, there is always the concern that they won’t pay the rent on time (or at all). Just because someone has a good rental history doesn’t mean they won’t lose their job and not be able to pay the rent. And if you need to eventually evict a tenant the process can be lengthy and expensive, adding to the costs you’ve already accumulated.
Reward: Someone Else Pays Your Mortgage
Finding a good tenant who pays on time means someone else is paying your mortgage while you build equity. It’s an ideal investment to make if all goes according to plan. You can make a substantial profit from rental income depending on how much the mortgage amount is and how much the market in your area allows you to charge. And when your mortgage is eventually paid off, that rental income will go straight to your bank account instead of to a lender.
Risk: Maintenance Costs
If the air conditioner stops working on a July afternoon and it’s 102 degrees, guess who your tenants will call? Landlords are responsible for all maintenance costs in a rental property, which can add up quickly when you consider how pricey some home repairs can be. Make sure you’re financially prepared to maintain your rental property, because it’s your responsibility to take care of the people living in your home and paying your mortgage. It’s not a question of if something will need repaired, but when.
Reward: Tax Deductions
Much like the tax benefits to owning a primary home, rental properties offer financial advantages when tax season arrives each year. Mortgage interest is one of the biggest deductions, particularly within the first several years. Other deductions include travel expenses related to rental activity (such as driving to the property to address a tenant complaint or a hardware store for items needed for a repair). You should note that repair costs—replacing a broken air conditioner, fixing a leaky faucet, etc.—are deductible, but improvements such as adding granite counter tops and hardwood floors are not.
Risk: Long-term Investment
For investors looking to build wealth in a short amount of time, rental property is not the way to go. There are significant start-up costs to buy a rental home, maintain it, and find tenants who pay the rent on time. As with any long-term investment, it takes patience and determination to see the financial results of owning a rental property. Plus if the housing market crashes again you could be stuck paying not only the mortgage on your primary home, but on your rental as well.
If a home is well maintained and the market is favorable, your rental property could appreciate in value over the years. So if you decide one day that being a landlord isn’t for you, selling the property could be very profitable. It takes several years for a home to appreciate in value, so make sure you know what you’re in for in the mean time if the ultimate plan is to sell.
Being a landlord can be very rewarding, but also time consuming and expensive. If you’ve decided that owning a rental property is the right move for you, The Adler Home Team can help you find the perfect fit!
About the Adler Home Team
When looking to buy or sell in Northern New Jersey, you may rely on The Adler Home Team and their intimate knowledge of the distinct communities throughout the region.Jeff & Debby Adler continue to lead with contribution and have served over 1,100 families in their 20 year experience in Northern New Jersey. Through their combined efforts, this team of eleven professionals is very diligent in serving a full array of clients from first time buyers to those seeking their expertise in Residential, Condos, Townhomes,Luxury, New Construction,Relocation, Short Sales, Foreclosures and Rental Properties.By accessing the very best in technology, current market data and creative marketing applications, The Adler Home Team takes every measure to ensure that their clients are educated and provided with the critical insights that meet their specific requirements. They teach, lecture and train at the national level on negotiation skills, marketing and team building. The Adler Home Team is most proud and thankful for their strong referral business that confirms their talents, creativity, professionalism, diligence, knowledge, and outstanding integrity. The Adlers look forward to forming a partnership with their clients to help them reach their goals and make smart business decisions. So, when it comes time for you, a friend, or a family member to make a move, trust the Adler Home Team to win for you. Google View all posts by The Adler Home Team →
Author:Jeff Adler Phone: 201-819-3309 Dated: September 28th 2015 Views: 123 About Jeff: When looking to buy or sell in Northern New Jersey, you can rely on The Adler Home Team and their in...
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