Double Checking The Details Before Renting

When they consider becoming a landlord, most people only look at the greener aspect but fail to account for any potential pitfalls they may have to deal with. Sure, it is passive income, but there are many variables one must consider before renting. So, let’s take a look at some of them.

Types of Rental Properties

When people decide on becoming landlords, they don’t always factor in which kind of rental property they want to own, to begin with. You may be surprised to find just how many types there are out there. There are residential properties that are the most common of all rental properties, and commercial properties that are not as common but rather profitable in nature. Residential properties, however, come in many shapes and sizes and can include a portion of a much larger residential property as well. Here are a few common examples of them: 

• Townhouses

• Apartments

• Condos

• Houses

• Mobile homes

• Basement suites

• Duplexes 

• Rooms

Benefits of Rental Properties

Investing in rental properties is an excellent option for individuals seeking stable and long-term income sources. It offers many benefits. 

Tax Perks

You may not know this, but rental properties are not subject to self-employment tax like other businesses. However, if you have formed a corporation, you would have to pay corporate taxes. Rental properties also benefit significantly from depreciation, which will be deducted from your taxable income every year and account for any wear and tear to the property. 

Property Appreciation

Real estate value mostly appreciates over time, which means that your rental property will not depreciate as time passes. When it is the matter of selling, most sellers will pay taxes on the appreciation of the property, also known as capital gains. If you decide to sell your rental property down the line, this is something to be mindful of. 

Downsides of Rental Properties 

That being said, there are some potential downsides to owning an investment property, so let’s take a look at some of them. 

Liquidity 

If you have already invested in a rental property that you have gotten some use out of, you may find it harder to sell this property on the market. 

Unpredictable Tenants 

It isn’t always roses and peaches when it comes to tenants. They may damage your property, stop paying rent out of nowhere, move without notifying you, or simply fail to make ends meet due to income loss. This would be your worst-case scenario as a landlord. 

Lack of Diversity

Real estate can be classified as a concentrated asset when you think about investment opportunities. What does this mean? If something were to happen to it, your money is tied up altogether, which wouldn’t happen if you made several smaller investments instead, such as in REITs. 

Time Management 

As a landlord, you’ll have several responsibilities like managing tenants, learning landlord-tenant laws, communicating with contractors, and ensuring maintenance is always on time. All of this is not just money-consuming; it is also time-consuming, which is something you must be prepared for. 

Want to learn more? Read what Will Doyle has to say about the real estate world.