Whether you’re looking to build a brand-new home away from home or want to upgrade your current living situation, rental properties can be a lucrative investment option. As the name suggests, a rental property in Orlando is something that you lease out to someone else (the renter) who then pays your expenses. You, as the landlord/owner, then collect the renter’s payments. Depending on the market, rental properties are typically more affordable than purchasing a home and offer unique tax advantages.
How Does Rental Property Investing Work?
The beauty of this type of investment is that it is very easy to understand. Essentially, you make an arrangement with a real estate agent to find tenants who can then occupy the rental property. You, as the landlord, will provide the space and the agent will take care of getting the necessary paperwork done (the lease, etc.). After the paperwork is completed, the agent will submit the agreement to a leasing company and then handles all the back-end operations – paying the bills, taking care of maintenance and repairs, and collecting the rent.
The beauty of this arrangement is that you don’t have to worry about anything except finding tenants. Once you’ve done that, all you have to do is enjoy the income from the rental property (which is typically higher than the cost of operating it).
The Pros And Cons Of Rental Property Investing
With all the benefits that come with rental property investing, it’s not hard to understand why this type of investment has skyrocketed in popularity over the last few years. However, just because the numbers are promising doesn’t mean that every property investment is a good idea. Here are some of the pros and cons of this type of investment.
Pros
One of the major perks of investing in rental properties is the tax advantages that are available. If you’re looking to decrease your income taxes, rental property investing is a lucrative option. For example, if you buy a vacation property that you live in for less than 36 months out of the year, you’ll likely qualify for the mortgage interest deduction. This allows you to deduct the interest paid on your mortgage from your taxable income.
Another benefit of investing in rental properties is the leverage that you get. When you buy a rental property, you’re essentially purchasing a property that already has money attached to it in the form of rent. This means that you don’t necessarily have to invest large amounts of money in order to make large gains. You can diversify your investment portfolio, decreasing the risk of losing all of your money in one fell swoop.
Cons
As with any investment, there are risks involved with rental property investing. Just because a rental property is “just a space” doesn’t mean that it’s not an expensive one. For example, if you decide to purchase a vacation rental in order to make extra money and decide to sell it after only spending a few months there, you could end up losing a large amount of money. This is why it’s crucial to do your research and take the time to learn about the risks before you dive in.
One of the risks that you have when investing in rental properties is determining the rental rate. Just because a property is “rented” doesn’t mean that you know what the rate should be. You could end up over or under-charging for the space, which could cause you to make a loss or a profit respectively.
Another risk that you have when investing in rental properties is determining how long the tenants should pay before they move out. This is commonly referred to as the “holding period” and it can vary from tenant to tenant. You could end up renting the property for a certain period of time and then have to find a new tenant before you begin collecting the monthly payments. Another possibility is that you could decide to renew the lease, which would give the tenant the right to stay there for another period of time. It’s not always easy to gauge how long a tenant should be given to pay off the property.
Yet another danger that you face when investing in rental properties is figuring out how much you should charge for the use of the space. This is especially relevant if you’re the first and only owner of the property. You have to decide how much you’ll need to charge in order to cover your costs (which include property management fees, taxes, and maintenance). You also have to decide how much you’re willing to risk and whether or not you want to invest in a property in an area that you aren’t familiar with.
Taking the time to learn about the risks involved with rental property investing can help you make the right decision and ensure that you make financial gains that you can eventually enjoy. Just remember to do your research and keep your eyes open for bargains wherever you might look.