In every financial decision you should have confidence that the payoff is worth the risks.
For the right person in the right situation a rental property (or investment property) is a great investment. However, unlike a traditional investment, it's not just what you’ve invested that’s at risk, it's also that you need to keep investing in it. This can have more of an impact on your personal goals.
Risks
- There are more responsibilities involved with being a landlord than most people think.
- Rental income may not cover your mortgage payments and other costs.
- Rental revenue is taxable as additional income and will impact your personal taxes.
- Unlike stocks, you can't instantly sell real estate if the markets change or you need cash, and if you sell your rental property all increased property value will be exposed to capital gains (roughly 50%).
- If you don’t have a tenant or your tenant is late with rent, you still need to pay all the expenses.
- There can be a lot of property maintenance costs and unexpected surprises such as a leaky roof that need your time and money ASAP.
Rewards
- Regular monthly income (rent minus expenses) could mean a steady, predictable cash flow.
- Unlike investing in stocks or other financial products, real estate is a tangible physical asset.
- While you can’t guarantee that the price of a rental property will increase, historically real estate has appreciated over time.
- You can deduct related expenses from your gross rental income such as mortgage interest, property taxes, insurance, maintenance costs, property management fees and utility bills (unless the utilities are your tenant’s responsibility).
If you’re thinking of purchasing a rental property, stay in control of the process by working with an experienced partner. Talk with an Advisor for advice that’s specific to your personal situation so you have the confidence to find the right investment property for you.
