Is Owning a Rental Property For You?

Real estate acquired at the right purchase price is a viable investment, particularly when the property is held for a longer period rather than just flipped for profit. When the property is income-generating and fully tenanted, ownership can be profitable in different ways.

Advantages of Owning Rental Property

Fully rented properties ensure a steady cash flow. Typically, rental income is used for maintenance expenses including property upkeep, physical improvements, mortgage payments, insurance premiums and property taxes. Even when the rent income is just enough to meet these expenditures, property owners stand to gain in the long run because of equity buildup. Property values may not always appreciate as expected due to economic conditions and other adverse factors. In these cases, owners of rental properties will end up owning a physical asset of some value when the mortgage is paid off. Real property assets can be leveraged to access funds for building improvements and upgrades. Rental property can be used as collateral for loans that can fund more acquisitions. There are tax advantages of owning rental properties. Since managing the property is a business, expenses are tax-deductible to a certain extent. Additionally, federal and local programs may provide tax incentives for owners who upgrade for improved energy efficiency. Basic updates such as addition of insulation, roof replacement and the use of energy-efficient windows can mean hefty tax deductions.

The Hardships of Rental Property Ownership

Managing a rental property can become a full-time job. It is a labor intensive, time-consuming endeavor. Residential leasing is a regulated industry where the laws often favor tenants. For this reason, owners need to understand what are expected of a landlord and how to manage their properties efficiently. In most states, rental properties need to comply with local codes regardless of the number of units involved. Licensing may not be required for rental structures that involve less than four units, but the property is not exempt from zoning restrictions and building codes. This means that the rental property should be in livable condition at all times. Owners who decide to undertake property management themselves will have to take tenant calls at all hours of the day or night. Landlords should address tenant issues in a timely manner. Owners can limit property management headaches by judicious screening of tenant candidates. Background and credit checks can be outsourced, but landlord is responsible for judging the suitability of a would-be tenant.

Pre-purchase Considerations

Buying rental real estate can be a good investment when the price is right and buyer treats the acquisition as a business undertaking. Business plan - Owning rental property is a business. As such, a would-be landlord needs to have a business plan that will guide the budget and the financial goals. Marketing plan- A rental property without tenants is a money pit. Landlord should be resourceful about marketing the rental property to limit down time and long vacancy periods. Lease agreement-A well-written lease vetted by a legal professional should cover all the basics of landlord and tenant responsibilities. Maintenance schedule - Managing rental property means adhering to a maintenance schedule to optimize asset protection. Deferred maintenance costs more than preventive procedures. A well-maintained property tends to attract more suitable tenants. Exit strategy - Should management and maintenance become troublesome, property owner should have a plan to decide when to cut losses and move on.

Property Managers to the Rescue

Owning rental properties requires an investment of funds, time and effort. Fortunately, property maintenance and management can be outsourced to professional managers. For a fee, property managers will handle the headaches of marketing, tenant screening and maintenance issues.

Byline

This article was written by Karl Stockton for rentersinsurance.net. Click here to visit http://www.rentersinsurance.net.

Source: http://thehowtogetoutofdebtplan.com/archives/is-owning-a-rental-property-for-you

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