Owning rental property can be a great way to start generating passive income. This is only true, however, when market conditions are just right and when property owners know what they’re doing. Before you choose to invest in a second home or turn one into a rental, you should consider the following benefits and drawbacks presented by leading Irvine real estate brokerage, Irvine Residential Living.
Generate Income Plus Appreciation
With a robust rental market and a good property management strategy in place, you’ll have the ability to enjoy both your rental income and appreciation. If you carefully select the property you invest in, it will continue to accrue value over time. This is especially true if you manage to snap a unit up in a high-demand area that’s poised to see lots of growth.
Another, major advantage of owning a rental property is the fact that the US tax code is quite favorable to investors. You’ll only be taxed on rental income that exceeds the combined cost of your mortgage payments and your property taxes. Moreover, if appreciation is high, you can refinance your mortgage for a higher payment and pull out the equity free of taxes. It’s even possible to avoid a capital gains tax on these assets by simply exchanging one investment property for another at just the right time.
Lack of Tenants
The drawbacks of owning a rental property are fairly obvious. You always run the risk of attracting bad tenants or no tenants at all. This is why it’s so important to choose your rental in a prime location. The amount that you charge for rent must be sufficient for matching and exceeding your overhead costs. If you can’t collect this amount on a regular and reliable basis, you run the risk of losing your investment entirely.
In addition to dealing with routine maintenance, repair issues and any portion of the utilities that you’ve agreed to pay, you may need to fork over money to a property management company to help handle your workload or secure legal services for resolving tenant disputes and handling evictions. Even the process of marketing your rental and finding new, qualified tenants comes with expenses that can add up fast. These are all costs that are well worth considering before becoming an investment property owner.
For more information or help finding the right investment property in Irvine, give us a call at (714) 454-6304. We’ll show you houses, townhomes, and condos in Irvine for sale while keeping location, budget, and potential in mind. Reach out today. We look forward to hearing from you.