If you’re looking to supplement your salary with passive income, owning one or more rental properties may be your solution. However, it’s not for everyone, and you may find yourself dealing with less-than-friendly tenants. On the bright side, if you don’t want to be hands-on, or simply don’t want to interact with your renters, you can hire a property management firm to do it for you. Before you make any decisions, however, here are a few things you should know.
Financial gains (with possible pains)
There are many financial benefits to owning a rental property. The Simple Dollar explains that the first is rental income. If you own a home outright, any rent collected (minus taxes and other expenses) is profit. You will also benefit financially from property appreciation. Historically, homes rise in value approximately three percent each year, although depending on where you live this could be significantly more, and some estimates put annual gains at closer to 10 percent.
On the other hand, owning a property is an added expense. You are responsible for marketing, maintenance, and the cost of making repairs when things go wrong. Not only does this add strain to an already-busy schedule, but having to handle the day-to-day tasks of operating a rental is stressful. A property management company can shoulder the bulk of the extra work, but will charge a fee for their services. This could potentially add up to almost a quarter of your rental income. There are companies, however, with straightforward pricing models that will allow you to hold on to more of your rental income.
Personal satisfaction (or stress)
In addition to the financial benefits, owning one or more properties gives you a chance to make decisions regarding how you want to run your rental business. You are, in essence, your own boss. If you’ve ever been in a bad lease situation yourself, you may have very specific ideas about how a landlord should interact with their tenants. As a property owner, you get the personal satisfaction of ensuring that families in your community have a safe and comfortable place to call home while earning money to take care of your own family.
There is a flipside to this, too, however, and that is that you run the real possibility of running into tenants that don’t respect your rules or your investment. When this happens, it can be very frustrating, and you may be tempted to respond quickly by canceling their lease. You must be careful and tread lightly in the situation. Your best bet is to remain calm and take the time to review your lease paperwork. You may not have cause for immediate lease termination, and trying to force a tenant out before their time is up can cause you legal headaches. Fortunately, if you have a property manager, they will handle all of the ins and outs of either rectifying the problem or beginning the eviction process.
Overall, owning a rental property can be a great source of passive income. Your property will likely appreciate, and you should be able to make a profit once everything is paid. If you do not have experience in real estate, it’s in your best interest to partner with a rental management company that does. There are many practical and legal hurdles, and one wrong move can damage your bottom line.
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