Welcome to Rental Property Basics: Part 2. Let’s pick up where we left off!
Owning a rental property does not always result in benefits, there are some disadvantages as well. For instance, it leads to the concentration of assets which is not diversified at all. Investment on a rental property must be in a specific city, in a specific neighborhood, on a specific block. Therefore, this means owning a rental property is tying yourself to a local real estate market, should anything unfortunate happen, the insurance won’t be able to cover your losses. The concentration of assets is never a wise decision for investment, when you have a substantial number of rental property in different locations the less this issue becomes a factor.
The more the number of rental property owned, the more they become a diversification tool. There is also the risk of tenants. There is never a guarantee that tenants will pay their rents on time regardless of their social and economic situations. This makes the revenue stream far from being guaranteed. Some tenants have the tendency of causing more damage to the property than others. However, sometimes you can get a good tenant who pays rent on time, follows the rules and maintains the property, but it is not always a guarantee.
When you have a rental property you will have to face the cost of insurance on the property, property taxes, and the homeowners association fees. These bills will always have to be settled regardless of whether there are people renting your property or not. It is clear, this will always have a negative impact on your finances especially when you do not have tenants on your property. To make it worse, these costs are usually about 25% higher compared to those of normal homeowners’ policy and property taxes.
It is always important to acknowledge that investment on rental property is always a good option for some people and one of the many options on the table for most people. It is advisable that you consider your personal strength, financial state, your interests and decide whether investing in rental property ownership is the right choice for you.