Owning a rental property can be a financially rewarding way to earn passive income.
Although the appeal of owning rental property is its potential to generate additional
revenue, the work that goes into cleaning, maintenance, tenant needs, and collecting
rent can wear on you. With any investment, it’s important to be aware of the risks and
responsibilities and to do your due diligence. If you’re exploring a real estate venture as
an investment opportunity, it’s important to partner up with the Gwaltney Group to find
the perfect Rochester property. Further, keep the following points in mind.
Who doesn’t want property that can generate income simply by existing? Renting out
your house or condo could lead to a surplus of income from the rent you collect —
assuming that amount is greater than your monthly mortgage payment and additional
homeowner expenses. This cash flow can provide a reliable source of supplemental
income for you and your family if you price the rental right.
Renting out your home means that you can write off a litany of expenses for mortgage
interest, repairs, depreciation, and insurance costs. As these write-offs add up, so does
the money that stays in your pocket at the end of the year. And as a self-employed
individual, you have the added benefit of writing off your home office or related
expenses from conducting rental-related business at home.
It’s a good idea to form a legal business entity like an LLC and make your rental
property business official. Although this includes some added paperwork, it’s worth the
effort for the tax perks, fewer personal liabilities, and more. However, there are services
that can help you with the process, so take a load off and work with the pros to register
your business, file your annual report in Minnesota, etc.
ALTERNATIVE TO SELLING
If you’re thinking about selling your home in the midst of a bad market, then renting it
out could be a nice alternative until the market improves. A rental unit will allow you to
earn some equity on the side. You might also be able to write off some of the
depreciation on the home when it comes time to sell.
With any property, it’s not a matter of if but when something will break. These repairs
can pop up suddenly and be quite costly. A tenant could call in the middle of the night to
report a roof leak, and you’ll need to have it repaired immediately.
One way to offset the stress of any midnight emergencies is by hiring a property
manager to be your point of contact in emergencies and be the one who oversees the
property and tenants. You’ll have to give up some of your rental income to the property
management company, but you’ll also be giving up the stress from managing it.
Since renters do not own the property they live in, they are less incentivized to treat it
with the level of care that a homeowner would. Good tenants are abundant, but there
are tenants who are either less careful when it comes to wear and tear, or just plain
messy. Again, stay on top of this by teaming up with cleaning professionals who can get
the property spic and span in no time.
One way to avoid irresponsible tenants that might miss a rent payment or make a mess
is to have your property manager conduct a thorough background check. Be sure to
charge what your property is worth to protect yourself from delinquent rental payments.
RISK IS ALWAYS PRESENT
A landlord has to be prepared for any number of things that could pop up because your
responsibility is to make sure the unit is habitable for the tenant. Furthermore, your
home can go through periods when it depreciates in value instead of appreciates, and
you could potentially go through a number of costly repairs or a string of difficult tenants.
Risk is ever-present for a landlord.
Putting your property on the rental market has the potential to be a financially rewarding
experience, but be sure to understand the risks associated with it. If you find that
managing a home or condo as a business is too stressful or time-consuming, providers
like a property manager and formation services could help you shoulder the load.
Ideally, you’ll be able to find a manager who can run the day-to-day operations and
responsible tenants who will take care of your home and pay rent on time. Convinced?
Start your property search with Gwaltney Group now. (507) 259-4926