Written By: Jacquelyn Annete García Vadnais
There has been an increased interest in renting out one’s home or an investment property to tenants in recent years. Many speculate that there is a great deal of potential for profit and sufficient opportunity for a homeowner or real estate investor to increase their real estate portfolio in the medium or long term. When deciding whether renting out your home or an investment property is a smart decision, it is essential to weigh the overall costs in order to ensure renting the property is a good decision. Below is a list of important pros and cons to consider when deciding whether renting out your home or investment property is the best strategy.
Important Pros of Renting Out Your Home
Higher Income
There is no doubt that a landlord who rents out an investment property or a homeowner that rents out their own home will have an increase in income. This is particularly true if your property is located in a valuable neighborhood with a great school district, for example. For property owners that are looking to increase their income, renting is a viable option to consider.
Allows Time for Property Values to Increase
If an investor or homeowner has a property that should be selling for more money in the future, it can be wise to rent the property and wait for property values to increase. This is an excellent strategy for a homeowner or investment property owner that is looking to make additional income to pay a mortgage while waiting for property values to increase.
There has been an increased interest in renting out one’s home or an investment property to tenants in recent years. Many speculate that there is a great deal of potential for profit and sufficient opportunity for a homeowner or real estate investor to increase their real estate portfolio in the medium or long term. When deciding whether renting out your home or an investment property is a smart decision, it is essential to weigh the overall costs in order to ensure renting the property is a good decision. Below is a list of important pros and cons to consider when deciding whether renting out your home or investment property is the best strategy.
Important Pros of Renting Out Your Home
Higher Income
There is no doubt that a landlord who rents out an investment property or a homeowner that rents out their own home will have an increase in income. This is particularly true if your property is located in a valuable neighborhood with a great school district, for example. For property owners that are looking to increase their income, renting is a viable option to consider.
Allows Time for Property Values to Increase
If an investor or homeowner has a property that should be selling for more money in the future, it can be wise to rent the property and wait for property values to increase. This is an excellent strategy for a homeowner or investment property owner that is looking to make additional income to pay a mortgage while waiting for property values to increase.
Sweat Equity
Renting one’s property has benefits related to sweat equity because it is possible for a property owner to make valuable improvements to their property to be more appealing to tenants. Then, once the property owner is ready to sell their property, they will have the opportunity to potentially sell the property for a higher price. Some examples are putting in a pool to make a home more attractive to vacation renters. In the long-term, it is likely that a pool will increase the value of the home significantly
Usefulness of Living in the Property While It Gains Value
If an investor finds one of their properties vacant, it can be useful for them to live in it if they are trying to save capital. This is a great strategy for landlords that are trying to finance larger development projects that don’t want an existing home to go into a short sale or foreclosure. This is also an ideal strategy to allow the property to continue to gain value over time.
Cons to Consider When Deciding Whether to Rent Out Your Home
The Value of the Property May Decrease While You Are Renting
While real estate is one of the more secure investments, property values do fluctuate, and it can be possible to lose capital while renting out a property before selling it. Property owners have to consider carefully about the timing that they are deciding to sell and whether they will lose money by waiting to have a tenant lease the property for an extended period of time.
Taxation, Fees, and Insurance Concerns
Many real estate investors forget about their additional costs that are required when receiving income for their home or investment property. Any rental income that is earned will have to be taxed. In addition, there may be maintenance fees on the house due to tenants living in it along with the requirement to have a different health insurance policy. Real estate investors need to consider carefully before they decide to rent out their properties to be sure that the amount of rent that they are receiving is enough to be profitable after taxation, maintenance fees, and insurance is taken out.
Impact on Your Credit Score
If a property owner has a home or investment property that has a mortgage, they must carefully consider the impact that the mortgage will have on their overall credit score. This is particularly the case for a property owner that has a second mortgage or additional Home Equity Lines of Credit (HELOC) on their property. By having too many mortgages, it may be difficult to obtain additional financing in the future.
Tenant Risk
When dealing with tenants, there are many risks involved. At times, tenants do not pay their rent on time or at all. If a property owner is considering leasing out their property, they have to be very careful to assess the risks of each tenant that is applying to live at their property. In addition to not paying rent, tenants also have an issue with damaging the property that property owners have to factor in as well. If a tenant causes a great deal of damage to a property, then there may be additional repairs required that take away from the property’s overall value.
Final Remarks
Renting one’s home or investment property is not a decision to take lightly. It is wise to run a preliminary analysis in order to ascertain whether the property has the potential to be profitable as a rental. If the property has a high mortgage, low potential rent payment along with insurance and extensive maintenance, it may not be wise to rent it to tenants. However, if the property has strong numbers and potential profitability, renting the property can be worthwhile even after considering taxation and maintenance costs as well. Property owners have to consider carefully a balance between profitability along with long-term property value. By doing so, they will be able to find an ideal medium between having a profitable rental and also being able to sell the property for the highest value possible in the long-term.
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Jacquelyn Annete Garcia Vadnais is an Investment Consultant and field expert blogger for Barracuda Consulting.
Jacquelyn has a JD/ MBA from Suffolk University, an LL.M in International Law from the University of Miami, and a B.A. from the George Washington University in International Affairs with a Concentration in International Politics. Jacquelyn speaks English, Spanish, French, and Portuguese and has lived in ten countries. Jacquelyn has done work for firms such as Boston Consulting Group and has worked with firms based in over ten countries in the fields of Real Estate, International Law, Expat Living, International Business, Forex Trading, and Travel. She has also volunteered her time and expertise at the Victims Rights Law Center based in Boston, MA.
Please leave your comments below. If you would like to subscribe to our newsletter, click here: https://tinyletter.com/barracuda-consulting. To purchase a full real estate report, or to access a complete suite of investment advisory services please contact us: https://www.barracuda-consulting.net/contact.
Renting one’s property has benefits related to sweat equity because it is possible for a property owner to make valuable improvements to their property to be more appealing to tenants. Then, once the property owner is ready to sell their property, they will have the opportunity to potentially sell the property for a higher price. Some examples are putting in a pool to make a home more attractive to vacation renters. In the long-term, it is likely that a pool will increase the value of the home significantly
Usefulness of Living in the Property While It Gains Value
If an investor finds one of their properties vacant, it can be useful for them to live in it if they are trying to save capital. This is a great strategy for landlords that are trying to finance larger development projects that don’t want an existing home to go into a short sale or foreclosure. This is also an ideal strategy to allow the property to continue to gain value over time.
Cons to Consider When Deciding Whether to Rent Out Your Home
The Value of the Property May Decrease While You Are Renting
While real estate is one of the more secure investments, property values do fluctuate, and it can be possible to lose capital while renting out a property before selling it. Property owners have to consider carefully about the timing that they are deciding to sell and whether they will lose money by waiting to have a tenant lease the property for an extended period of time.
Taxation, Fees, and Insurance Concerns
Many real estate investors forget about their additional costs that are required when receiving income for their home or investment property. Any rental income that is earned will have to be taxed. In addition, there may be maintenance fees on the house due to tenants living in it along with the requirement to have a different health insurance policy. Real estate investors need to consider carefully before they decide to rent out their properties to be sure that the amount of rent that they are receiving is enough to be profitable after taxation, maintenance fees, and insurance is taken out.
Impact on Your Credit Score
If a property owner has a home or investment property that has a mortgage, they must carefully consider the impact that the mortgage will have on their overall credit score. This is particularly the case for a property owner that has a second mortgage or additional Home Equity Lines of Credit (HELOC) on their property. By having too many mortgages, it may be difficult to obtain additional financing in the future.
Tenant Risk
When dealing with tenants, there are many risks involved. At times, tenants do not pay their rent on time or at all. If a property owner is considering leasing out their property, they have to be very careful to assess the risks of each tenant that is applying to live at their property. In addition to not paying rent, tenants also have an issue with damaging the property that property owners have to factor in as well. If a tenant causes a great deal of damage to a property, then there may be additional repairs required that take away from the property’s overall value.
Final Remarks
Renting one’s home or investment property is not a decision to take lightly. It is wise to run a preliminary analysis in order to ascertain whether the property has the potential to be profitable as a rental. If the property has a high mortgage, low potential rent payment along with insurance and extensive maintenance, it may not be wise to rent it to tenants. However, if the property has strong numbers and potential profitability, renting the property can be worthwhile even after considering taxation and maintenance costs as well. Property owners have to consider carefully a balance between profitability along with long-term property value. By doing so, they will be able to find an ideal medium between having a profitable rental and also being able to sell the property for the highest value possible in the long-term.
--
Jacquelyn Annete Garcia Vadnais is an Investment Consultant and field expert blogger for Barracuda Consulting.
Jacquelyn has a JD/ MBA from Suffolk University, an LL.M in International Law from the University of Miami, and a B.A. from the George Washington University in International Affairs with a Concentration in International Politics. Jacquelyn speaks English, Spanish, French, and Portuguese and has lived in ten countries. Jacquelyn has done work for firms such as Boston Consulting Group and has worked with firms based in over ten countries in the fields of Real Estate, International Law, Expat Living, International Business, Forex Trading, and Travel. She has also volunteered her time and expertise at the Victims Rights Law Center based in Boston, MA.
Please leave your comments below. If you would like to subscribe to our newsletter, click here: https://tinyletter.com/barracuda-consulting. To purchase a full real estate report, or to access a complete suite of investment advisory services please contact us: https://www.barracuda-consulting.net/contact.
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