Investing in real estate was always considered to be one of the safest options. If one waited for the right time, the returns could be profitable and what is is virtually risk free these days. Think again. The decision to take the plunge and buy an investment property needs an enormous amount of consideration.One off instances of a friend of a friend making a killing in real estate clubbed with middlemen provoking one into making the big move just goes to show how gullible an investor can be.
The fact that real estate is the safest, most profitable for of investment is more of a myth. If the numbers are to be believed then 16% of the country’s total individual wealth comprises of real estate. Could the numbers be lying, creating a sense of false security? For once instead of looking at the bog picture consider the small components that make up this picture- maintenance costs, legal formalities for transfer,investment size (small investments are practically impossible), liquidity are just some of the issues one has to face.
Most often than not, the prospect of a steady flow of income from the rent trumps all cons which are rarely taken into consideration. One cannot create a steady source of income immediately, there are various intricacies involved which come to fore once the reality of owning a home sinks in, specifically if you plan on managing the property on your own. Here are our top 4 issues with buying a rental property:
1.Start up costs,repairs & taxes:
So you’ve put the down payment and the loan has been approved. The next question you will find yourself dealing with is, is your house ‘rentworthy’. No house is perfect and you will have to spruce the living quarters enough to rent it out. Getting the wiring checked and taking care of the minor dents here and there costs money and if the entire house needs a coat of paint, some repairs and additions just add that to the expenses.Once the tenant moves in, they may come across issues of their own which will require your attention and wallet from time to time.Even minor repairs require an expert hand and that definitely does not come cheap. What about the property tax? Since the rent is now part of your income you need to declare that as well.
2.Tenants & rent:Finding tenants won’t be easy. Specifically, in this day and age when trust is absolutely mandatory. In an ideal world, you may find the tenant you like, who pays rent on time or atleast informs in advance in case the rent will be late. Ideally, the tenants tenure will be smooth sailing with minimal to no hassles.We do not live in an ideal world, when managing a property on your own all these bumps in the road need to be taken into account.
3.Problem tenants and evictions : As mentioned above, in a Utopian tenancy everything will be ideal including the tenants. On the off chance, if you were to encounter a tenant from hell with eviction being the only solution, you need to gear up for a world of pain.Going via the legal route is the only sensible solution which may or may not work. In case the tenant refuses to move out, you may have a lawsuit at your hands which may take a while and you’re losing on the rent for that duration.
4.Safety, management and finances: Tenants come and go, some may stay on a while and renew the lease. There will be good days and bad and you need to manage your finances for the bad days.Also, the safety of your property & managing the entire tenancy on your terms is surely tough and you need to gear yourself up for the long haul.
Managing a rental property on your own specially if you’re based in a different city/country can be quite daunting. Follow ups and maintenance issues tend to be an ongoing process because of which having a professionally managed property management service is always a plus.They do the hard work while you reap the benefits. Additionally,we are not necessarily recommending or promoting alternate sources of investment but the decision to own a rental property should be made once one is financially independent enough to have a significant amount of disposable income at hand. Buying rental property is a great way of making money & can prove to be an excellent means of supplementing your income not replacing it.
Tags: eviction, investment, landlords, liquidity, maintenance, management, property management, redgirraffe, rent, rental property, tenants
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