Owning a rental property in Nigeria sounds like a great idea, doesn’t it? You buy a property in a nice area, find tenants and let the cash flow.
However, there are some matters you have to consider before owning a rental property.
Below are a few pros and cons of owning a rental property and a few tips to help with the cons:
1. Income from Renters
The major advantage of owning a rental property is the direct income that comes from renters. When the rent is paid to you when due, it can be more than enough to sustain you depending on if it’s the right kind of property.
For instance, if you own a property with 4 3-bedroom flats in it and say the rent is N800,000, there would be a return of N3,200,000 yearly on that property.
A person who puts time in finding the right rental property to rent can make a very nice profit off a rental property.
By owning a rental property, you get to be your own boss! A lot of landlords live on rental income. Some even have a portfolio of properties they own which they invest in, maintain and possibly leverage on according to their wishes and schedule.
Appreciation is the increase in value that properties experience as time passes. This is not usually guaranteed. However, if you own a property in a stable area, the property has the potential of increasing in value over the years.
Properties in sparsely populated and less desirable areas can appreciate over time especially in the face of a general inflation.
Having a rental property can be a good investment as you are sure to make a lot off its disposal because of the appreciation in value. Depending on the market growth, rental value has a tendency to rise at any given time.
This can also depend on the area where your rental property is situated as in some areas, the value may rise over time, while in other areas it may seem stagnant.
When you remodel, revamp or upgrade your property, you are adding more value to it thereby increasing your earnings from rent paid to you. Remodeling your property goes a long way in shooting up its price if you choose to sell it in future, giving way to more earnings
1. Concentration of assets
Owning a rental property can be a concentration of assets. A lot of situations have arisen and are still arising wherein people invest their life savings into owning a rental property, only to lose it in a fire, a government dispute or policy, a civil war or earthquake.
A concentration of assets may not be a wise investment strategy. However, the more wealth you have and the more that property you own becomes a tool for diversification of funds, the more this becomes less of a factor.
2. Bad tenants
Having bad tenants can really be a bitter pill to swallow. Some tenants would only pay the initial rent and stall on all other subsequent rent payments, making trouble anytime their rent is due. There will always be defaulters when it comes to the issue of rent.
You may still get returns on your investment while having to cope with headaches from 1 or 2 defaulters. However, it becomes a nightmare when you have more defaulters than good tenants, as this could be a huge setback for you.
You will be amazed at the level of annihilation some tenants leave behind upon vacating a property. This could cause a serious drawback and loss if this becomes a constant occurrence as you would always have to spend money to get the place in good shape.
There is also the risk of not having a tenant at all, which means that you would 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 if you are not careful, you may end up running at a loss or incurring debts. The thing about some property taxes and fees is, regardless of whether you have people in the house or not, you would still face the cost.
4. Active Involvement
There is a level of dedication and commitment that comes with owning a rental property. You can’t own residential rental properties and be laid back, cross your legs and sit back at home. There will always be complaints here and there from tenants, even the debtors among them will not stop troubling you. There will be occasional repairs to make and services to render.
While you won’t be able to eliminate the pitfalls completely, minimizing the disadvantages of owning a rental property can be achieved with these tips;
1. Create an emergency fund to take care of repairs or damages done to your building over time.
2. Have your property inspected before buying so you can avoid unexpected expenses
3. Make sure you employ the services of a lawyer to help you handle any legal issue that would most likely arise
4. Do a quality background check on your proposed tenants. Find out if they have a stable source of income and what they do for a living to deduce if they can pay the rent regularly
5. Join the landlords’ association in your area as you would be able to benefit from the knowledge and experience shared at meetings held
6. You can do away with worrying about a bulk of problems by simply hiring a property management company
Like Donald Trump said: “It’s tangible. It’s solid. It’s beautiful. It’s artistic … I just love real estate” Investing in a rental property can be an excellent decision if you go into it informed.