Rental properties can be a great source of passive income. However, as with any other investment, it’s important to know exactly what you are getting into before you buy your first rental property. There is no doubt that investing in real estate helps to build wealth over time, but this decision comes with its own set of downsides. Before you take the leap, it’s helpful to consider the hassles of owning a rental property.
Property management
Owning a rental property can be a ton of work. Managing the property from a distance without a property manager requires a great deal of patience and ability. You need to spend sufficient amount of time, energy and resources to find the tenants, manage their issues and handle other legal processes related to owning rental properties. Hiring property managers comes with its own set of flipsides. You are lucky if you get reliable and professional real estate managers. Dealing with less-than-ideal property managers can be a tricky and expensive task.
Maintenance expenses
The repair costs can range in frustration levels from just annoying to major cash loss. Repairs are unavoidable. To keep up your property in best shape, you need to invest in maintenance. Small repairs like noisy heaters, broken garage doors, faulty ceiling fans are not too bad, but you need someone to fix these things. Plumbing, HVAC and Electric are some of the big ticket items that can cause painful financial consequences.
Expenses vs returns
If you are thinking of investing in a rental property, return on investment is the first thing that you need to keep in mind. Mortgage is no doubt the biggest expense, but you will also have to factor things like property taxes, maintenance and insurance. These costs will help you determine how much money you will make from your rental property. A rental property also ties up your returns, thus preventing you from making other lucrative financial decisions.
Don’t forget the variable costs
There is a possibility that you might not consider several variable costs of property ownership that may cause unexpected breaks in your income stream. These variable costs include possibility to sit vacant between tenants, declining rental properties etc.
Bad tenants
Well, there is a possibility that you might get stuck with bad tenants who pay late and cause damage to the home. The eviction process requires time and you may end up in losing more money in the meantime. Therefore, it is important to run a credit check and background check on your prospective tenants.