Investing in a rental property may seem like a simple concept. Buy a condo or a house. Sit on it while other people pay the mortgage and in a couple of years, sell the property and thank inflation for giving you free money! It is not always that simple though. From high property taxes to difficult tenants, owning an investment property is not always that simple.
Here are some important things to consider before taking out a mortgage on an investment property:
Tenants Can Destroy Your Home
You have to think of an investment property as an asset. If you destroy it, it can depreciate in value. Sadly, your own tenants can destroy your investment. Things are not always hunky-dory when it comes to tenants. Many tenants destroy their landlord’s homes, with no consideration for how it can affect you and your families’ assets. When I was growing up, my parents invested in a couple of rental properties, both commercial and residential. In our residential property we have had tenants who have destroyed the baseboards, much to our amazement. We have had tenant’s teenage sons who drew all over the walls and bedroom doors. We had to repaint absolutely everything in that home due to messy and inconsiderate tenants. Even with the deposit, we have had to put extra money into gutting, repairing and remodeling the home after it had been infiltrated with slobby tenants.
Property Taxes Can Eat into Your Profits
Property taxes can destroy the profit of your investment. For one lady, her property taxes on her rental home had shot up 300% seemingly overnight, 1. ALWAYS consider property taxes before investing into a rental property.
A Fixer-Upper May Cost More Time and Money Than you Realize
While buying a fixer upper for a low price, remodeling it and then selling it for a profit may seem like a fun and attractive venture, walk on the line of caution when it comes to fixer-uppers. Fixer uppers may cost more money to remodel than you realize, along with the restorations taking more time than you may think, 2. Be sure to carefully research and analyze the cost of restorations before you buy a rental property which may need a lot of fixing up.
Property Prices May Go Down
Time does not always inflate property prices. My parents had seen disappointing returns on their investment properties during the recession and after the Arizona property boom had burst. You must be cautious when it comes to investing in properties, as property investment bubbles can burst, economies can deflate and destroy your asset value.
Overall, investment properties can be some of the most lucrative investment opportunities you can tap into. You must do your research before making such a huge investment. Take into careful consideration the economy, taxes and repairs. Be sure that your investment is a profitable one!