Have you ever thought about buying a place that you could rent out to make extra cash? Maybe it was an apartment or condo downtown or a cute place in a great and upcoming neighborhood. There are many pros and cons associated with having a rental place (i.e. getting extra money every month, or being a landlord). Read these points below to help decide whether having a rental property is right for you.
Covering Your Costs Plus Some
When you own a rental property the most important thing is to make sure that the rent covers the cost of maintaining and owning the home. The best situation for rental properties is when you are able to get extra cash flow at the end of each month, which happens most often when you own multiple units in a building. This situation is beneficial because the first unit covers the cost of the mortgage plus other expenses while the other unit can provide the extra cash.
Being Smart About the Extra Cash Flow
It is tempting to use all of the extra monthly cash flow on your bills or “fun” times. However, it is important to remember that owning a rental property is a long term investment. This means that any extra money that comes in each month should be used to pay off the mortgage. The faster you payoff the mortgage, the faster you will realize the return on your investment.
You End up Owning a Home Mortgage-Free
After about 15 to 20 years of someone else paying your monthly mortgage for you, you will end up owning the home mortgage free. This means that each month you collect rent, it will be going into your pocket and not the banks.
Improvements to the Home Overtime
It is important that you maintain the home by making smart improvements that will build the home’s equity. If the market is down these improvements will ensure that people will want to still live there. If the market is up it just means that people will be willing to pay more.
You can Increase the Value of your Property
By doing improvements to your home you can increase the rent which then can help increase the value of the home. Taking a rental property that was undesirable and making it attractive can significantly increase your equity.
Know Your Taxes
Taxes can make owning a rental property easier. When you own a rental property you will get tax breaks for things like mortgage interests, depreciation, and rental expenses.
Owning a rental property can be an effective way to help build financial security. When properly executed, you essentially have someone else pay off your mortgage for you. Yes, there is responsibility that comes with being a landlord, but being prepared for that upfront can pay off in the end.