Everything You Need To Know Before Investing In Real Estate Rental Property
Most people have a common misconception that owning a real estate rental property is a means of sure income and also that it is the best investment they can make. As far as improving your financial status is concerned, this might be true. But it does not mean that a rental real estate will automatically put an end to all your financial woes. There are a lot of other variables that one must consider before buying rental real estate. This article will give you a short idea of all the things that you need to know before investing, so that you do not regret your decision later.
Excessive Property Taxes
This is an unexplored negative of buying a rental real estate. One might think that it is quite obvious that buying a new property will lead to new property taxes; so it should not be unexpected. But the issue most people overlook is not the tax itself, but the amount of tax. If you are a regular person living in a small residential, your property tax is hardly a matter of concern. But never expect the same to extend to your rental real estate property. Be prepared to pay a hefty amount because taxes on rental properties are usually much higher than that on your primary residence.
You can’t deduct all expenses
Owning a rental real estate can have some perks. For example for the building itself, deduction for depreciation is awarded. This means you can get the building for a depreciated value even if the market value of the building has increased over the years. This is a major advantage especially if the building is in a favourable condition. But this depreciation benefit can backfire when you are selling the property. You can also deduct certain other expenses like utilities and maintenance for tax purposes. However the deduction of depreciation does not extend to the land and the principal mortgage.
Finding a good rental property is difficult
Real estate property rents can vary depending on a number of factors including the location, the size of property, its condition, the neighbouring environment, proximity to transport facilities and so on. Find a property that can match all these basic requirements of the expected tenants can be quite difficult. Only if you get such a property fitting all the ideal criteria, you will get a high demand and therefore a higher rent. Most of these properties are not mentioned in any specific lists. Even if you manage to find a good property, it will be difficult for you to bargain or determine its price, unless you have good connections.
Loans are hard
Getting a loan, especially for the purpose buying of real estate will be a tiresome task. Buying a rental property without the help of a loan is almost impossible for the common man. Even if you manage to pay a hefty amount with your own cash, at least a part of the amount as loan will be required. Loans incur interests and the rent obtained from the property should be able to recover the amount invested on it with the additional interest. And most of the properties that you buy will be quite old fashioned or damaged. So you also have to invest a little extra for initial renovation and restoration.
Tenants can be a nightmare
Renting out your property to the right tenant is very crucial. If you make a mistake there, then you will have to face issues dealing with them every month for rent collection. Before blindly trusting your property with someone, first perform enough background checks and credit checks on them. Paying the rent at the correct time is not the only duty of the tenant. He or she should also be the kind of person who would take care of the rental property as if it were their own. If this is not the case, you will be spending loads of money on restoration after every tenant vacates. So be careful and choose your tenants wisely.