Owning rental property is a popular investment choice. There is a good deal to be said to collect lease checks every month and deposit the money in your bank accounts. For anyone interested in leasing property investing, there is a vast range of details to consider before purchasing that first property.
Pro: Income Plus Appreciation
Rental property provides investors with a constant stream of income. The return in the rental income is often quite attractive. In addition to the rental earnings, a property investor may also gain from the appreciation of the value of a property. Rental property that’s well researched and chosen has the possibility to increase in value over time.
Pro: Use of Leverage
Purchasing an investment property could be financed, reducing the price to buy a property. Properties can be purchased by investors with 10 to 20 percent and finance the rest. The return on investment increases in any price appreciation of a property. By way of example, if a rental property is purchased with a 10 percent down payment along with the land rises by 10 percent in value, the investor has realized that a 100% return on her invested capital. The fact that the debt is secured by the land allows investors to borrow money to buy investment property at a lower rate of interest than that of debt that is regular.
Pro: Tax Benefits
The tax code provides several advantages for property investors. The income from the leasing is taxable only to the extent that the income exceeds the expenses in the mortgage and taxes. If the property increases in value, the mortgage can be refinanced to a higher amount and the equity pulled out tax-free. A property agent may also avoid the capital gains taxes on an investment property by buying the property for another investment property.
Con: Sudden Expenses
A major drawback to leasing property ownership is that the chance of expenses that are extra that are unexpected. A house repair or the process of finding a new tenant could lead to prices that the investor may have trouble. The necessity for a new furnace or water pipes can cost tens of thousands. Homes need both ongoing maintenance and at times major repairs. A house investor should have an emergency fund set aside to pay for unexpected expenses.
Con: Bad or No Tenants
If there is a house not rented, the investor has all the expenses of the house to pay and no income. It may take months and expenses to find a new renter. A tenant may lead to more problems than no tenant. The property can not be damaged by bad tenants, not even and pay the rent on time or at all lead to legal proceedings. Tenant choice is an essential factor for property owners.