3 Pros and Cons for Homeowners to Consider Before Renting Out Their Property
Property ownership used to be all about an individual or family owning the home where they live, but homeowners are now investing in real estate to build toward a retirement or to supplement their current income stream. Those properties are not only the homes that the owners live in, but ones that the owners rent out to tenants. If you’re considering buying a rental property for extra income, then be sure to weigh the following pros and cons before you jump in.
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Owning property is a way to let your money work for you. Rather than having it sit in an account untouched, you can use the money you’re saving to build equity. Paying rent means that your money leads to nothing for you in the end, but paying a mortgage allows you to turn that money into equity. In addition to your own residence, you can own multiple properties that you rent out to tenants. Their rent pays your mortgage to help you build equity.
If you’re planning on purchasing multiple properties, give careful consideration to your business entity. Many landlords prefer to operate as an LLC because of the tax advantages and protection from litigation. Fortunately, it only takes five steps to set up a Wisconsin LLC.
2. Supplemental Income
In the short term, renting out a property can lead to extra income. As long as you’re charging more than your monthly expenses (rent, taxes, HOA fees, insurance, management fees, and estimated maintenance), you should be able to turn a short-term profit on renting out your property.
3. Diversify Your Income
In the long term, a rental property (and home ownership in general) can contribute to your retirement fund. A cushy salary alone might help you live comfortably right now, but it might not get you far in retirement. The best way to become wealthy is to take the money you already have and invest it, and owning rental property is one of the most popular methods. Invest your money while you have the cash flow rather than relying on one source of income to get you through life.
1. Maintenance and Upkeep
Maintenance issues arise in any home, but the issues can add up when you’re relying on tenants to notify you of maintenance needs. The entire situation can be stressful for a homeowner trying to deal with house problems from afar. However, it gets easier when you hire a property management company to step in and take care of maintenance requests. Management companies will also help you find tenants, which means you don’t have to do the legwork to fill the place. While it is an extra investment to work with a professional property manager, it’s an additional way of safeguarding your money.
2. A Sight Unseen
It can be challenging to own a house that you never get to see in person, and one scary scenario is a unit that’s destroyed by a renter. Without being able to enter the unit regularly, you won’t know that there are problems unless the tenants report the issues. This takes trust in your renters to be responsible tenants who treat your property well and communicate about problems with the unit before the damage gets out of control.
3. Problem Tenants
Another unlikely scenario is a renter who skips paying rent, leaving you with a mortgage payment that comes out of your own pocket. Unfortunately, some renters look better on paper than they are in person. If possible, try to meet every renter so you can get a feel for who they are. If not, then make sure your property manager is doing their best job to vet them by running background checks.
With younger and older adults opting to rent instead of buy their own homes, the market is ripe for owners who want to purchase additional property for rental income. You could be one of the fortunate homeowners who is slowly building equity for your future while providing a supplemental source of income for your present. The right house, the right management company, the right tenants, and some smart financing can lead to one of the biggest and best decisions you could make for your portfolio.
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