You’ve likely heard a lot of talk about the possibility of using rental property income to supplement your savings. As with many wealth-building strategies, it’s hard to know if you’re making the right decision, and this is especially true with rental property owners. Although managing rental properties has the potential to be lucrative, is it the best option for you in your current stage of life?
The truth is, it’s not for everybody. To be worth it, the pros need to outweigh the cons. Let’s look at the advantages and disadvantages of keeping your rental property as an alternative investment.
The Pros Of Rental Properties
When deciding whether or not to continue working with rental properties, you have to decide if they are more hassle than they’re worth. Keep the following advantages in mind when making that decision.
Tenants Pay Off Your Mortgage For You
This one seems obvious, but it’s important to think about the implications. It means that rental properties are a long-term gratification investment strategy. You won’t see your big payday until you decide to sell. Are you okay with that?
Income Tax Deductions
Owning a rental property brings along with it some major tax advantages. Some of the many deductions you can make include mortgage interest, asset depreciation, and maintenance and repairs. If you decide to ditch your rental property, know that you’ll be throwing away these tax benefits along with it.
Good For Those Who Can’t Work Normal Jobs
Earning through rental properties allows you to build wealth regardless of your physical condition. With the help of property managers, you can support yourself even if you’re too old or sick to work a typical job. This might not apply to you now, but you never know what the future holds.
Resistant To Economic Crisis
Rental properties are affected by slow economies, but not nearly as much as some other types of investments. That’s because even if the stock market is crashing, people still need a place to live. A rental property can be a great way to buffer your investment portfolio during hard times.
The Cons Of Rental Properties
It may seem like a genius idea: buy a second home, rent it out, and create a direct income stream to live on. For many, this does work, but consider the following drawbacks to determine if you should hold onto your property.
Requires A “Landlord Personality”
Some people just aren’t cut out for being a landlord (and that’s okay). A good landlord needs to be assertive enough to confront tenants about respecting their property, paying on time, and raising rents. If these types of conversations make you squeamish, you might want to switch to a wealth-building strategy that is less confrontational.
Lacks Liquidity
Do you need quick access to cash? If so, rental properties might not be for you. Selling a property while it is occupied is complicated and can take several months. Unlike other assets in your portfolio, such as stocks or bonds, you can’t just sell at a moment’s notice.
Requires Time
If you can’t afford to hire a property manager, you need to be available to deal with tenants and repairs. A rental property may not be a good idea for those who live far away or are too busy to take care of issues that come up.
Causes Stress
Managing a rental property is inherently stressful. You have to worry about the economy, potential lawsuits, tenants disrespecting your property, dealing with late rent (and possible evictions), emergency repairs, and more. This might not be a problem if your life is fairly calm, but if you’re already high-strung or stressed-out, it might be time to let go of that rental property.
The Bottom Line On Rental Properties
As you can see, there’s a lot to consider regarding the future of your rental property. If you decide that managing a rental property is a good fit for you, remember that it is only one piece of the wealth-building puzzle. You never want to put all your eggs in one basket.
By working with a professional financial advisor, you can create a comprehensive wealth-building plan designed to help you reach your financial goals as quickly as possible. If you’d like to learn more about how Haydel, Biel & Associates can help put the pieces into place and set you up for success, contact us at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.
About Haydel, Biel & Associates
Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.