What to Know Before Purchasing a Rental Home | Journey Home Lending
If you have ever rented, either short or long-term, you know that costs are pretty steep these days.
While the total profit that rental owners make isn’t as big as your amount due might have you believe, investing in property could be a solid way to increase your income. If you have a favorite vacation spot, opting to buy rather than rent every time you go could even increase your overall profit when you factor in the savings of being able to stay in your own space.
There are a few things you should know if you are considering real estate as an investment, but you certainly don’t have to be a guru. Owning a rental can be pretty simple.
Pros and Cons
There are a lot of factors you will need to think about when you start investigating owning additional properties.
Do you want to be the landlord, or will you opt to work with a rental company? What will your rental terms be: short or long-term? Are you hoping to provide affordable housing or planning to go the AirBNB route?
If you are still on the fence after answering these questions, consider a few pros and cons of owning rental property.
Pro: The financial rewards and tax dedications can lead to a steady flow of income once you are well-established and help with your personal costs of living.
Con: The costs of upkeep can eat into your overall earnings rather quickly, particularly if you purchase an older home.
Pro: For short-term rentals, you can use the property 10% of the time you rent it to others and still deduct your expenses, making a favorite vacation spot much more economical.
Con: You may not have as much flexibility on your travel dates if you want to ensure your rental is available at the highest seasonal vacation time.
Pro: You have the opportunity to provide stable, affordable housing and create some return customers, in either short or long-term rentals, when you purchase a home in an area that does not anticipate decline.
Con: Dealing with people and essentially a shared living space can create quite a few challenges. You will have to determine fault on damages and make difficult decisions when it comes to late or short rent payments.
While this list could go on and on, the biggest factor you need to consider is your commitment. Are you ready and willing to put the time in and make the decisions required to maintain a second property? If the answer is yes, the pros will always outweigh the cons.
Is It Worth It?
Once you have weighed out all the pros and cons, you may still be wondering if investing in a second property is worth your time. Even when you take out the associated costs, you could wind up spending a considerable amount of time prepping, fixing and managing another home.
While your personal time is certainly a huge consideration, in order to answer the question, you really have to decide what you hope to get out of your rental.
Even without a substantial amount of income coming your way each month, the tax breaks may make renting a home worthwhile. In the same light, if you are focused more on the long-term investment and satisfied with only a few hundred dollars of extra monthly income, working with a management company that handles the day-to-day might make renting a great side gig.
Finding your reason for investing in the first place is the best way to decide what is right for you. There are lots of ways to break down any perceived barriers when you are ready to invest in real estate. Take the leap!
Ready to find out about a mortgage on a second home? Contact us and get started.