It is no secret that inflation rates have gone higher than we hoped they would, ultimately nudging us all to think about our financial status in the present economy. And in such a financial state, investing in real estate is a popular business advice most of us get to hear. IBIS World reports that the real estate and brokerage market size is 222.3 billion dollars in the USA.
Therefore, in this read, we’re going to discuss its positive aspects and the less talked about drawbacks to it.
Pros of Investing in Rental Properties
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Source of Passive Income
Passive income is a means of income that is acquirable with minimal day-to-day labor. It won’t be false to say that owning rental properties is one of the least demanding ways to generate a side income or even a primary income depending on your circumstance.
Besides, considering the increasing rate of millennials preferring to stay in rental homes, the chances of earning a secure amount of ready money are rather high.
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Your Property, Your Rules
Let’s suppose that you have wanted to sell the property you own for some while. Typically, in real estate value of the place usually increases. But, in some cases, depreciation can occur due to an economic meltdown.
No problem! You can rent it out for the time being and use it to generate income until the sun shines again, and you can sell it on your own terms.
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Tax Benefits
Tax laws can be complex to understand and are often varying. Therefore, we’re going to avoid getting into the specifications. However, tax benefits are a huge convincing factor when you look at it from an investment approach. Let us understand this concept with the example of the depreciation deduction.
Basically, owing to all the wear and tear that a rental property goes through, its value decreases. And on this very basis, you can claim a depreciation deduction. Isn’t that a win-win?
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Financial Security Like No Other
Owning rental property is a huge detail because it provides you with the economic cushion most people might not have. You are certain to feel a sense of confidence while investing in other businesses and markets that have a higher risk probability.
And as a bonus, the rental income can be used as a much-needed financial back up too.
Cons of Investing in Rental Properties
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Requires a Large Capital
This is undoubtedly the simplest yet the biggest hurdle in the way of owning rental property. You’ll need a large capital to buy the property and bear the cost of its upkeep. While the cost of upkeep is way lesser than the profits you can gain from the property, as long as the property isn’t rented, it will be a short-term loss.
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Uncooperative Tenants
This may not seem like an issue that needs to be particularly addressed, but difficult tenants may even be responsible for minimizing your future renting prospects in case they cause any kind of damage to the property.
Having said that, be sure to get a legal document signed stating all the rules that are liable to them as tenants.
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Difficulty in Liquidating
Rental property, like all other real estate investments, can not be considered a liquid asset. So, if you are struck by an unforeseen circumstance and need financial assistance immediately, your rental property will rarely be your best mate. Not only is the sale likely to be dragged on a couple of months, but the amount you receive may not be ideal either.
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Legal compliance requirements
As the landlord, you’re going to need to stay up to date with legal requirements, i.e., landlord-tenant law, building codes, etc., so that compliance can be ensured. Otherwise, neglect of these legal obligations can lead to penalties like fines and even lawsuits, etc.
Conclusion
In conclusion, investing in rental property has both downsides and upsides. To be successful in rental property investment, one must research the market thoroughly, develop a solid financial plan, carefully screen tenants, stay up to date with legal and regulatory requirements, and be prepared for unexpected expenses and emergencies.
With adequate planning and careful consideration, investment in real estate is likely the smartest wealth-building move you’ll make.