When considering owning a rental property, doing your research first is essential. Doing one of these two things would make the most sense: moving into an area with relatively low home prices and buying just one property or finding out what renting costs in your region before choosing between renting or owning in that area.
Pros of owning a rental property
Tax advantages
There are several advantages to receiving rental income, such as deducting both mortgage interest and property taxes from your taxable income, deducting any repairs/upgrades you make to the property in the year you made them, and depreciating all of the property’s expenses over 27½ years (your choice).
Additional money
A rental property will bring in extra monthly money, whether rent or a mortgage payment being paid down. If you have access to a cash flow (see below), you can use this extra money to supplement (or replace) the income from the rental property. Because the rent is paid ahead of time, this will also reduce your risk in case of a bad tenant or slow-paying tenant.
Equity
If you invest in a rental property to sell, you’ll have substantial equity that can be used for purchasing a new house or as retirement money. You can also use this as part of your downsizing plan.
Cash flow
Cash flow is being paid regularly and paying down the loan’s principal balance faster than your mortgage payments will be able to do for you. Unfortunately, it’s not an effortless process. You must maintain the property, deal with break-ins, and find good tenants.
Control
You will control who you allow to live on your property and be in charge of what they can and can’t do. You can evict them if they aren’t paying the rent or leave their garbage lying around.
Cons of owning a rental apartment
Financial risk
Many risks are involved in owning a rental property, and all of them can affect your cash flow. A bad tenant can damage the property, not pay the rent, or cause you to be responsible for repairs and maintenance before their lease is even up.
Distractions
Suppose you are renting to live in the property. In that case, it will become a full-time job to find and screen good tenants, do routine maintenance on the property, perform the repairs you promised the tenant you would fix, keep track of rent money (if it’s not going directly to your bank), and tend to any other issues that arise. The time you spend doing this can be significant enough to prevent you from working on your own business.
Long-term commitment
Once you have committed to your tenants to have them live in your property for at least 12 months, getting them out is hard if you want to move back into the property. You may be stuck with tenants for several years (or more) unless you want to make the financial loss of having your house sit empty for that long.