Investment properties can be a solid source of passive income or the reasoning for depleted time and energy. It all depends on what you are willing to put into the investment and what you expect out of it. We’ve made a list of the pros and cons
of owning an investment property. Hopefully it will help you decide if a property should be your next investment.
Passive Income – If you are able to charge rent that is greater than your mortgage payment and upkeep costs, you will see positive cash flow at the end of each month. This may not be trivial at first, but over
time that amount will grow as you pay off the mortgage.
Capital Growth – If you buy wisely, the property you own will appreciate in value over time. But, it won’t do that on its own. Remember, you’ll have to put in the work for upkeep!
Tax Perks – As a property owner you are eligible for many tax benefits. These include deductions for depreciations costs, property management expenses and insurance. Also, you can sell a rental property and invest
in another of “like kind” without paying capital gains taxes.
Working with People – Do you like working with people? Because as an owner of the property you will have to work with the tenants on regular basis. You have probably read horror stories about managing tenants!
Unfortunately, those stories are more common than we care to admit. Also, if an emergency within the home arises the tenants may contact you at any time of day. You need to be ready to be of help 24/7 as the owner of the property.
Loss of Money – If you don’t charge high enough rent to cover your expenses, you will end up losing money on the property. But, if your rent is too high you may not be able to find tenants, which means you would
lose even more money. There is a small window for making a profit with investment properties. You should assess that profit window before you purchase the property. Look at the condition, location and research the average price of living in your
area BEFORE you purchase the property.
Neighborhoods and Taxes Can Change – The area that you first purchase the property in may have been a booming area with lower property taxes. That can all change over time, sometimes for the better but just as
often for the worse. If it does change for the worse, you have to be prepared to take a cut in your profits.