Being a land baron — it’s an appealing idea, isn’t it? Real estate is a notoriously stable long-term investment, but it’s not for everyone. There are both advantages and disadvantages to owning a rental property – here are a few to consider when considering owning a rental property.
Pro: You Get Multiple Sources of Revenue
Even a single rental property will increase your net worth in several different ways. You’ll get income from your tenants and your property will appreciate in value over time. Any improvements you make to the property yourself will further increase the value of the asset.
When you have multiple properties, the income potential is even more considerable. You will be able to diversify your assets in terms of properties and tenants. The more properties you’re able to purchase, the more consistent your revenue will be.
Con: You Also Have Multiple Sources of Expenses
If your rental property needs a new HVAC system, you’ll need to find a way to pay for it. Rental properties require a lot in upkeep and maintenance. You need to keep them clean and habitable and may need to renovate them occasionally to ensure that they are still marketable.
Other expenses can include legal expenses, as it’s possible that tenants may need to be evicted. Tenants can also cause expensive damages.
Pro: You Can Sell Your Property for Profit
If you want to sell your property later, you can. In nearly any market, property values are going to rise steadily. Once you no longer want steady revenue from your rental property, you can choose to cash out. This could be used to invest in a business or retire. You can also leverage your properties to buy additional properties.
Real estate does give you some flexibility, as you can borrow against the equity that you have at any time.
Con: Your Money is Tied Up in an Asset
Becoming a landlord does mean that your money will be tied up in real estate, which could ultimately lead to a lack of diversification if you don’t have enough invested in other areas. If you want to start a business or are interested in other aspects of investing, you might be looking for a less expensive investment. It is possible to invest in real estate through other means, such as REITs or investing in stocks for real estate focused companies.
Get Started Today
Whether a rental property is right for you depends on your own financial goals. Rental properties make you money, but they also take some work — unless you engage with a property management company. You can get started by investigating the real estate available in your area.