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The Pros & Cons of Rental Property Investing

by Guest on Mar 9, 2012 Real Estate 845 Views

So, you want to be a landlord, huh? If you are like most people, the answer to this question is a resounding no! You undoubtedly want to be a “real estate investor,” not a “landlord.” Unfortunately, the 2 are not easily separated because if you want to engage in long-term rental property investing, you must be both. It’s similar to income tax: no one will ever say, ‘yes I really do want to pay income tax,’ but as we all know, you cannot earn a salary without paying Uncle Sam. So just like paying taxes is a necessary evil when earning a salary, being a landlord is usually a necessary evil when it comes to long term real estate investing.

The good news is that the advantages of rental property investing far outweigh the negative aspects of being a landlord. What follows is a rundown of the pros and cons of long-term real estate investing, as well as some critical success factors.

Pros

• The ability to utilize leverage to minimize out-of-pocket expenses, thereby improving cash-on-cash ROI when you sell.

• The ability to earn “free” equity because your tenants will be paying down your mortgage every month yet you are the one that gets to keep the built-up equity.

• The ability to generate additional monthly income.

• The ability to deduct depreciation and other business expenses, including fully financed expenses, from your personal tax return in order to increase the amount of your federal tax refund.

• The gratification of providing a good home for a family in need.

Cons

• Like any investment strategy, there is some risk involved. For example, you can never know for sure what exactly lies behind the walls, things like mold or cracked joists. However, you can follow best practices and minimize your risk.

• This is not a quick-hitting strategy. It typically takes several years to optimize the return on your investment.

• Dealing with tenants can sometimes be a headache. From time to time you will have to deal with late payers, troublemakers, hoarders, and other undesirables.

• Managing rental property takes time and in fact can sometimes feel like a part-time job. Repairs will have to be made, tenant complaints will have to be addressed, and rent will have to be collected. This investment strategy is best for people who are highly motivated self-starters, and who have at least some free time.

Critical Success Factors

It is my opinion that a strong work ethic is the most critical success factor, but as they say, that’s not all, folks. Other personality attributes are important as well. You can and will succeed in rental property investing if:

• You are willing to dedicate enough time to learn before jumping into an acquisition.
• You have a long-term perspective (10 years +).
• You are already earning a regular income.
• You have enough free time to have a part time job.
• You have enough courage to take on marginal risk.
• You have the people skills to effectively handle people from all parts of society.
• You are able to complete simple home improvement tasks & repairs on your own.
• You have good credit.

Bottom Line

Now that you understand the pros, cons, and skills necessary to succeed, your odds of success are greatly enhanced. You can’t be a successful real estate investor if you are not prepared for the realities of it. Now that you have the proper mindset, you can begin to delve into the nuts and bolts of the strategy; first by learning, then by doing.

Article source: http://www.appraisalarticles.com/Real-Estate/2905-The-Pros-and-Cons-of-Rental-Property-Investing.html

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