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Know the Pros and Cons of Owning a Rental Property

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Know the Pros and Cons of Owning a Rental Property

By Ashokalion Subscribe to RSS | July 18th 2012 | Views:
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Real Estate is one of the best investment options. Investing in property for the purpose of renting it out and earning regular income from the same has proved to be a smart move for many real estate investors in Houston and Dallas area. Large number of individuals in Houston and Dallas are investing in real estate everyday with the motive of multiplying the returns, but real estate investments can also prove to be a debacle if you are not aware of the pros and cons of purchasing rental properties. However with careful understanding of the risk, the benefits of real estate always prevail over the drawbacks for a qualified investor. To survive in the rental market, it is essential for you to understand the pros and cons of purchasing property as it helps you make smart decisions on real estate investment.

The following information would shed light on the benefits and drawbacks of purchasing real estate property.

Some of the benefits of purchasing real estate property are as follows:

1. Regular Income: Purchasing a property to rent out can be a wise step to earn an income each month. Landlords in Houston and Dallas rent out their property at a rate higher than the mortgage cost thereby paying off the mortgage and obtaining a positive cash flow.

2. Real estate value on average is less volatile: Real estate is a long term investment, and over time many properties will increase in value. The best part is that since the value of real estate is that there is a base level of value in the property at any time versus a stock or a business, where you can lose it all.

3. Tax Benefits: If your rental property is running at a loss, it can help you financially by reducing your taxes. However, you are also allowed to depreciate the value of real estate so it offsets current cash flows against a noncash expense.

Real estate investment also comes with several shortcomings. Recently, I came across an interesting write up on Heraldnet.com that says rental property is not always a guaranteed investment.

The drawbacks of buying properties are as follows:

1. Finding eligible tenants: When you buy a property for rental purpose, the most important challenge that you may face is to find a responsible tenant who would take proper care of your property and pay rent on time. Finding a good tenant can be a daunting task. Bad tenants can prove to be a terror as they might damage your property and never pay the rent on time. They can even involve you in legal proceedings to make things worse. Most often landlords have to resort to eviction process to evict the tenants who violate the rental agreements.

2. Filling vacancies for tenants: At times, if the rental market crashes, it takes a significant period of time for landlords to find a tenant. The worst case scenario is that even if you are not earning an income from your rental property, you still have to continue paying the mortgage on the rental property.

3. Extra expenses: This is another major drawback of owning a property. There are lots of hidden expenses such as costs related to home repairs, finding tenants, screening prospective tenants, rental registration with the local city or county,etc.

4. Risk of litigation: Landlords are exposed to litigation risk for their properties, and as such they face the need to protect their assets with appropriate steps like insurance or putting property in a legal entity like a LLC to reduce personal exposure. However, these steps increase your cost as well.

5. Maintenance of the rental property: Owning a property calls for several responsibilities. You must take proper care for the maintenance of the property and invest adequate time and money to keep your home spick and span. In addition, there are legal requirements to install appropriate security devices and smoke detectors.

These are some of the benefits and drawbacks of a rental property. Investing in rental property is a smart move and makes real sense if you are aware of the pros and cons and act competitively to standout in the rental market. At the same time, you should be prepared to face all the adversities.

Ashokalion - About Author:
Jay Raman is the broker of record for The Lion Real Estate Group, a Houston and Dallas area brokerage focused on working with investors and homeowners buy, lease, or sell their property. Jay and his team have been in the investment property Houston and association management business for the past 6 years and manage over 160 residential (single family home) properties in Houston and Dallas as well as several associations. To get more great articles or ideas, you can also visit the Lion Real Estate Group’s Website, Facebook or Twitter Account.

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