Top 3 Reasons Why Owning Rental Real Estate May Not Work For You
Thinking about buying some rental real estate?
A lot of people are, especially in today’s environment.
From Wall Street to Main Street, people are jumping on the real estate bandwagon in hopes of high returns and high cash flow.
And clearly, we think real estate can be a wonderful, wealth-building endeavor.
But it’s certainly not for everyone and, although it can seem like a great investment, it might not be the best opportunity for you.
The rental real estate market isn’t something you can jump right into without extensive knowledge of the industry.
Unfortunately, real estate can be unpredictable at times, especially right now with so many factors influencing it like lack of labor and supplies.
Besides owning properties in a somewhat crazy market, let’s dive into some other reasons as to why this might not be the best decision for you.
#1 Rental Real Estate Is A Long-Term Investment
If you are looking for a get rich quick business, this is more than likely not going to work for you.
We’ve preached this many times: Real estate is a long-term proposition. It should never be treated as an annuity and, unless you own A LOT of properties, should not be viewed as a stable form of cash flow.
Unlike other investment strategies where you can get your money back along with the profit you made after a week or two, your money will stay invested in the property for months or even years.
Even with a good property management company to help you manage everything, unexpected costs can come up, or the market price can drop leaving you with less money than you started with.
It’s important to have extensive knowledge in the real estate industry before purchasing properties for means of income.
Understanding the market, costs of owning a home, best areas to invest, and other key factors is going to be extremely helpful in making sure you will have the best return. The market can be unpredictable and has cause experienced companies to lose money due to incorrect predictions.
Are you ready to make a long-term investment, and do you have the knowledge needed to make a solid investment?
#2 Tenants Can Cause Problems
Tenants can be a new landlord’s (or even an experience landlord’s) worst nightmare, which is why having a consistent tenant screening process, a well-written lease agreement, and an efficient eviction process is important.
These are things that can be difficult to do on your own, so being able to afford an attorney or a reliable property management company who can take over settling everything up for you is beneficial.
However, with solid processes and agreements set up, bad tenants can slip through the cracks or a tenant might even fall on hard times. If you end up getting tuck with a bad tenant, it can lead to unexpected damages to the property, unpaid rent, and other headaches.
When damages occur, it’s also important to have a contact list of vendors ready to go in case of both emergency and regular maintenance. You can do some of the maintenance on your own, but it can become overwhelming. For larger maintenance issues, it is best to have an expert handle the fixes, so everything is done correctly and up to code.
Are you prepared to manage a tenant and handle maintenance?
#3 Laws And Taxes
Depending on your state, there are different laws, regulations, and taxes you need to know about before renting out your properties.
For instance, Fair Housing Laws need to be followed to make sure everyone has equal opportunities when submitting an application for your property or properties.
Lease agreements also need to be well-written to ensure you don’t miss important regulations and policies. Many Owners have an attorney help out with this process, so know someone in your area that can help will be useful.
Next, is taxes!
Taxes can be difficult to deal with even without extra sources of income. Two kinds of taxes to be aware of are property tax and income tax. These will vary from state to state, so make sure that you are up to date with what those tax rates are.
Do you know the tax rates and both federal and state laws for owning property?
We don’t want to scare you away from investing in properties. Owning real estate can be a great business opportunity, but we want to make sure it will be the best investment for you.
Although owning a rental property might sound like a good idea for making extra money, it’s a lot of work, and it’s not always going to be a quick pay day.
If you are still interested in owning rental real estate, make sure you are prepared for a long-term investment, are oaky with not seeing a return on your money for at least a few months to over a year, and that you are prepared for extra costs and maintenance. It is beneficial to know businesses and individuals in your area who can help with all of the legal processes and maintenance that come with owning a rental property as well.
At T&H Realty, we have created numerous kinds of content to help out new landlords and people interested in investing if you would like to learn more about owning rental properties.