Owning a rental property can be a great way to create extra income. But like any investment, it comes with its fair share of pros and cons. Here are a few things to consider before you begin investing in rental properties.
Pros and Cons of Owning A Rental Property in Southern California
Someone Else Pays Your Mortgage!
Sounds great right? Well, it really can be if you have the right tenants! Owning a rental will create an income stream you can use to pay the mortgage itself. With the right rental, you will create enough income to pay all of the operating expenses for owning it, plus a profit on the side.
People Will Always Need Somewhere to Live
Real estate is a sound investment. Andrew Carnegie once said, “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” If he was alive today, he would be worth $309 billion.
Income Tax Deductions
You can deduct all sorts of things on a rental property. You must keep detailed records and receipts of everything you intend to write off.
- If you have a loan on it, the interest can be deducted
- Travel and mileage costs to visit, repair and inspect your rental property
- You can deduct maintenance and repairs. This includes everything from a new roof to replacing a light bulb.
- HOA Fees
- You can deduct any portion of the utilities you are paying for
Retire in Style
Have you found a home you love? But maybe it’s not in the ideal location for your work commute. Or maybe it’s not the right size for your family. It’s never too early to think about retirement! If you find a home you absolutely love, a strategy many use is to purchase it and rent it out until they are ready to move in! The home can usually pay for itself, and you are able to hold on to your dream home.
Passive Side Income
If you get all your ducks in a row, and have a low-maintenance rental with great tenants, owning a rental can be excellent passive side income.
You Get “No Respect!”
Aside from the usual wear and tear, some tenants will do little to nothing to take care of the home. While you are in charge of maintaining a livable house, you cannot control what they do. You could have to deal with a hole in the wall broken windows of faulty plumbing you haven’t been made aware of.
You Might Get Sued
Hey, it happens. People could take you to small claims over a deposit you kept, or an injury sustained on the property. Their claims can be frivolous and without merit, but it can still take time and energy to deal with.
The home needs to be properly maintained. Even if it is in the lease that they are in charge of mowing or maintaining the pool, it ultimately your investment. The repairs and yearly costs to maintain the property should be considered before you make an investment.
Plain and simple, being a landlord can be stressful. If you get a high maintenance tenant, your phone could be ringing at 11 at night because they saw a bug. In addition, if the rental becomes run down over time, the repairs bill could be continual. Also, with some tenants, you might be chasing down your rent each month.
What happens if the price of rental drops, but your mortgage stays the same? Or what if property taxes go up, but you are not in a place to increase the rent? You will want to consider all scenarios and make sure you have some wiggle room with the rent you are charging. Don’t cut it too close that you get yourself in a bind. In addition, financing the second property can have additional hurdles before a bank can help with financing.
As with any investment, make sure you thoroughly research the pros and cons. Find a property that will be low maintenance and make sure to thoroughly screen all prospective tenants!
If you want to learn more about owning a rental property in Southern California send us an email now or give our team a call today! 949-533-7166