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Becoming a property investor can be extremely rewarding financially, but it’s not a road everyone can venture down successfully. For a newbie, the value of research cannot be overstated – and that means every aspect from the location and type of the house or apartment you purchase, to understanding your legal and ethical responsibilities as a landlord. There’s plenty of information out there about becoming a property investor and landlord, so allow us to simplify it in an easy-to-understand summary of pros and risks. First the Pros It’s always best to start with the good stuff, right? And there’s plenty of it when it comes to becoming a property investor. Income stream: As long as it’s professionally managed (this is not something to DIY), a rental house or apartment can provide very lucrative returns and a steady income (a net positive cash flow), even once all the costs like mortgage, insurance, and maintenance are taken out. Tax benefits: There are lots of tax benefits you can claim for a rental, but it’s essential you enlist the services of a professional to make sure everything is legal. Some legitimate tax benefits include depreciation, mortgage interest costs, improvements, maintenance, and even wear-and-tear. Capital appreciation: In most (but not all) cases, holding on to a property for a number of years will result in an increase in its value. Should you then decide to sell it, the difference between the price you paid for it and the selling price is a profit. For some investors, rather than selling they will use that equity to purchase another property and start building a portfolio. Now the Risks Nothing worth having is ever completely easy, and being a property investor is no different. There are risks in becoming a landlord, but many of them can be reduced by employing the services of a professional property management company. Bad tenants: It’s a fact of life that there are bad tenants out there who take advantage of inexperienced landlords. If a tenant falls into arrears or damages the house or apartment, it can have a huge effect on your cash flow and profit – sometimes with catastrophic financial results. (This is why it’s so important to maintain a contingency fund.) Rising Costs: Things like rising interest rates, taxes and elevated insurance premiums are generally out of your control. While you might think you’ve got your costs covered, there’s always a chance of those perceived “fixed” costs not being so fixed after all. Remember, things like insurance premiums can be affected by weather events, and extensive maintenance and repairs can crop up unexpectedly. Again, contingency is King. Declining property values: It’s a fundamental truth that what goes up must come down – including the price of real estate. The value can fluctuate both up and down over any given period of time, as the market is cyclical – that’s why it’s important to get professional advice before you invest and ensure your expectations are realistic. Of course, there are countless other items you can add to both the pro and risk columns of becoming a property investor, but what we’ve outlined above are the basic ones to keep in mind. If you enlist the help of a professional management company even before you make a purchase, you can ensure you’re on the right side of the balance scales. Author Plate Danny Torres is from Torres Turn Key, a property management company in Rochester NY with more than ten years’ experience dealing with both domestic and international property investor clients. Providing a holistic service for both commercial and residential properties, the company brings together a host of experience and specialist knowledge to build long-term relationships and create maximum value and benefit for their customers.
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