Investing in rental real estate; the advantages of owning rental property: Part 2

There are many advantages and disadvantages to consider when you are deciding to purchase rental real estate.

Owning rental real estate can have some wonderful financial rewards over the long run, but for every upside there is the downside that must be considered. There are many variables to consider when you are deciding to purchase rental real estate which can be an advantage or disadvantage depending on your circumstances. Below you will find some of the disadvantages to owning rental real estate.

Disadvantages-

  • Liability –It is your responsibility to ensure that tenants are safe and the property adheres to health regulations, government building codes and you have secured the right insurance for you and the property.
  • Unexpected Expenses- There’s not much you can do to prevent unexpected expenses from occurring. Over time your rental property will need periodic repair, it is best to set up a reserve fund from the cash flow of your property to meet these expenses. Unexpected expenses such as, broken pipes, new roofs, water heaters and buying a new furnace can be costly. It is best to be prepared and make sure you have the reserves set aside at all times.
  • Maintenance – Repairs are inevitable, and maintenance is the only way to keep your properties in good condition. You will be responsible for any maintenance issues that may arise and it is best to keep your properties properly maintained to prevent further costly problems.
  • Bad Tenants – Bad tenants can ruin your rental property, violate the terms of your lease agreement and default on rent, costing you thousands of dollars.  Always remember to prescreen tenants by pulling credit reports, doing criminal background checks, and checking eviction history reports.
  • Vacancy – If your property is vacant, it will not be generating income. Expenses such as, the mortgage, insurance, taxes are still be due. If you have a reserve fund for the rental property, you will be able to survive long vacancies with little trouble.

Remember: There are a lot of advantages and disadvantages of owning rental real estate. Deciding if it is the right choice for you requires weighing the pros and cons. Before deciding to purchase or invest in rental real estate always consult a licensed realtor and tax professional.

Michigan State University Extension offers financial management and home ownership education classes. For more information about classes in your area, visit either the MSU Extension Events feed or MIMoneyHealth.org.

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