Pros and cons of owning a rental property in layman’s language simply means the favourable and unfavourable factors of owning a rental property. This article sheds more light on what ordinarily should be a worthy venture
When I was an undergraduate schooling in Benin, my first overtures away from the school hostel opened my eyes to the profitability of residential rental properties. My landlord in the self-contained I stayed back then had three other properties which he usually visited. Those residential rental properties were more like his empire; his only source of livelihood and you sure could tell that it was a wise investment. Opulence was his personal bodyguard; wealth trailed him everywhere he went. You could tell the investments paid off. He spent his entire day including weekends inspecting his properties and collecting rent when due, not forgetting when he had to carry out repairs. This had being going on for sometime until someone laid a complaint on one of his properties that fell short of standard.
In fact, the land where his properties stood was a disputed land. Within days, the bulldozers were rolled out and his residential rental buildings which had being his source of livelihood for years came crashing to the ground. Only my hostel stood!
A week later, the man died of a heart attack.This left me with something of a dual view of owning a rental property.
Though residential rental properties when well managed could be a huge fortune for the investor, on the other hand there could be more costs than expected and there are other big risks involved too if you are not doing the right thing.
Firstly, it is advisable to have a full ground knowledge of what you are getting yourself into, then you can start think of reaping the dividends of what should naturally be a wise venture.
The pros of owning a rental property may be relatively few but they are definitely powerful. If all goes well as planned you will smile to the banks from proceeds of a residential rental property. Here are some of the advantages of owning a rental property particularly properties of a residential nature.
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1. Income from Renters
The goldmine from owning a rental property is basically the direct stream of income that comes from the renters. That alone, when paid when due keeps body and soul together and should ordinarily make you a very wealthy person if it’s the right kind of apartment. For example, if you own a property which has, let’s say 12 mini flats with each flat up for #200,000 annually, it means when fully occupied there will be returns of #2.4 million yearly on the property. Though other expenses may accrue in the course the year, still it’s a good sit-back and get rich investment.
2. Income from Property Value Growth
In addition, another area you have to consider is the property value. Simply put, rental value has the tendency to rise at any given point in time depending on the market trend. This is obviously going to be a variable thing, as it depends heavily on the area where your rental property stands. In some areas, the value may rise significantly over the course of a few years, while in other areas it may remain flat. Ideally, this value growth holds pace with inflation at a minimum. If you happen to be in an above average area, you might find that you can beat inflation; on the other hand, a really stagnant area may not even keep with inflation.
3. Revamping and remodelling
Another strong area you need to consider is that you can decide to change the outlook and feel of your property which will mean adding more value to it, thereby increasing your earnings.
Turning your property from ordinary to high class correspondingly shoots up the price of that property and should you choose to sell it in the future, you would be realizing a huge fortune from such transaction.
Though the disavantages to owning a rental property is relatively small, the effects on the owner can be disastrous. Let’s take a look at some of the disadvantages.
1. Concentration of Assets
One drawback to investing in a rental property is that for most people, owning a rental property is a serious concentration of their assets. There have being situations in the past where people own rental properties from their life savings only to lose same property they invested their life, sweat and savings in to an inferno, government clampdown, flood, tsunami, earthquake, insurgency, civil unrest or war. Subsequently, if they are unable to stand the heat in the kitchen they might as well begin to knock at death’s door.
Hence, noncentration of assets may not be a wise investment strategy. However, the more wealth you have, the less this becomes a factor and the more that property ownership becomes a tool for diversification rather than something you’re concentrated in.
2. Bad tenants
Having bad tenants in your piece of property is a huge let down and can place you on a path of no return. Some tenants never pay rents asides the money they pay when moving into the property. These tenants’ preoccupation is to make trouble anytime their rent is due
Though, sometimes you’ll get a great tenant that pays their rent on time for years untold, but that’s just by the way, There will always be defaulters when it comes to the issue of rent, you can only pray not to have too many of them in your property.
You may still get returns on your investment while having to cope with the headache from 1 or 2 defaulters. However, it becomes a nightmare when your defaulters are more than the good tenants, that could really be a huge setback for you. Again, some tenants won’t pay regularly, and others won’t just pay at all.
There are also cases of tenants whose duty is to cause damages to your property. You will be amazed at the level of annihilation some tenants leave behind on vacating a property. This is a serious drawback and you may be running at a loss if it becomes a constant feature of your residential rental property.
There’s also the risk of not having a tenant at all, which means that you’ll have periods where the property generates no rental income.
3. Taxes and Fees.
There are property taxes and fees that the owner incurs here and there which eats into their profit and God help you if you have to deal with the problems of having bad tenants alongside. That could be suicidal. You won’t only be running at a loss, you will be incurring debts and your mental health may just be at risk. The major constraint of taxes and fees is that, regardless of whether you have people in the house or not, you’ll still be facing the cost.
4. Active Involvement
You can’t own residential rental properties then cross your legs and sit back at home. There is a level of dedication and commitment that comes with it. There will always be complaints here and there from tenants, even the debtors among them will not stop troubling you. There will occasional repairs to make and services to render.
In fact, the major thing that will have a permanent stay in your thoughts for years to come as long as that residential rental property still stands is the property and the tenants therein whose lives’ affairs invariably becomes yours too.
Albeit, you can do away with this barrage of problems by simply hiring a property management company or a facility manager