Owning rental properties in the greater Baltimore area of Harford County has its definite advantages. With its perfect blend of beautiful landscapes, exciting city life, historical monuments, and plenty of entertainment options, it would seem this would be the perfect place to reap rental property benefits.
However, owning rental property, regardless of its location, has some financial ups and downs that must be considered.
Today we will look at some of the financial benefits of owning a rental property as well as the financial downsides you may encounter so you can be better informed as to whether investing in rental homes is something you want to pursue in the future.
Rental Properties Have Financial Benefits
Owning rental properties is often a worthwhile investment and a positive source of income. Here are some of the top financial reasons why landlords may be interested in owning a rental property.
It is no surprise that one of the top reasons people invest in rental properties is because of the steady stream of income they provide. For doing practically nothing, you can collect monthly rent from your tenants to pad your bank and retirement accounts, fund vacations, and use your tenants to pay your mortgages for you. With home prices still hovering historically low, you should be able to generate a steady income right away once your property has been leased to the right tenant.
Property Appreciation and Equity Growth
Owning a rental property provides you the opportunity to reap significant rewards. Over time, your property has the ability to appreciate, even if you make zero improvements to the home. Though this will depend on many factors such as the state of the economy and the location of your property, if you choose your investment location wisely, chances are, some level of appreciation will occur.
In addition to appreciation, any home improvements you do decide to make on your rental property can add value to your home. Doing even small things such as freshly painting the walls, sprucing up the landscaping, and upgrading to energy saving appliances will help increase the value of your home at a relatively low financial cost to you. This increase in home value also leaves room for you to charge your tenants more each month, therefore increasing your income.
The truth is (without getting into too much detail) owning a rental home is great come tax season. In fact, it is suggested that real estate investments provide more tax benefits than any other investment. So why not take advantage and use all the deductions you can?
Being able to write off things such as mortgage interest, property taxes, insurance, maintenance or upgrades, property management services, and even utility bills (if you include them in rent), can significantly lower your annual tax bill.
Financial Downsides to Rental Property Ownership
For those who are not involved in the business of owning rental properties, it may seem that property owners just sit back and enjoy the financial benefits of leasing their homes to tenants. This can be far from the truth, however, as there is always a downside to everything. Here are some of the financial cons to owning rental properties that all landlords should be aware of before investing in any property.
Owning a rental property always comes with a certain level of risk. You can buy the perfect home and make many desirable improvements to it, but you cannot change its location. This has a huge impact on your home’s value, the quality of tenants you can place in your rental, and what you can charge monthly for rent.
Here are a couple of the things that can quickly turn a dream investment into a financial nightmare:
- The construction of commercial buildings nearby. Noise, excess traffic, and the diversity of people that frequent your home’s neighborhood can negatively affect how your tenants feel about a particular area.
- An increase in crime. People want to feel safe and want to protect their families at all costs. One way of controlling this is to choose a place to live that has low crime rates. If your rental property’s neighborhood experiences a sharp rise in crime rates, you can believe your rental income will suffer because of it either in the form of lowered rent or even worse, increased vacancies periods.
In an ideal world, you will purchase a rental property for a great price, charge enough rent to cover your mortgage plus some, and place a long-term tenant in your home that will always pay on time.
Let’s be real, this is not always going to happen and that is the risk you take when you decide to become a landlord.
Tenants will not always pay on time, they may damage your property (and despite having a security deposit, this can eat at your profits anyways), and you may have times when your property is vacant. All of this is bound to have a financial impact on your bank account, and not in the way you had hoped.
Taxes, Fees, and Insurance
Despite having some of the best tax benefits available, you will still be responsible for paying some taxes, homeowner’s association fees associated with the property, and the cost of any insurances you choose to have on the home (be prepared to pay somewhere between 10 and 20 percent more for comprehensive landlords insurance when compared to basic homeowners insurance). The financial issue here is that whether you have tenants in your property or not, you will be responsible for not only these costs. but possible many more.
Active Involvement That May Cost Money
Even if you enlist the help of your favorite Harford County management group to help you manage your rental properties, you will have to devote some time and money to your rental properties.
If you use a property management group, there will be associated fees for those services. You will need to make repairs, routinely check on the property, and maybe even interact with tenants at some point. Evictions can cost money upfront, upgrades to your home are not free, and in the end, the market may bite into your profits despite all of your efforts. You will also have to do paperwork (and possible pay someone to help you), especially when it comes to the tracking your rental property income and expenses.
Some landlords are not prepared for this and do not want to invest additional finances into a property they have already placed a large amount of money into. The problem is, owning a rental property is an ongoing thing that will involve some time on your part and have some costs that will come straight out of your profits.
For some people, owning a rental property might seem like the perfect financial move. However, owning a rental property comes with its fair share of financial ups and downs.
It is important you understand both the pros and cons to investing in property before you get started. It might also be helpful to enlist an extra helping hand in the form of a property management group to manage your properties for you.
If you are looking to rent your Harford County property and want to ensure that the best tenants will be placed in your home, rents will be collected in a timely matter, minimal damage will be done to your property due to routine inspections, and a solid legal process protecting both you and your assets, contact Bay Management Group today. With their friendly and knowledgeable staff ready to help you manage your rental home, you can bet your experience as a landlord will be more of an “up” than a “down.”