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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PROS
1. Equity
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.
CONS
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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