The Disadvantages Of Managing A Rental Property

Managing a rental property offers the potential for attractive profit if you can get past the possible disadvantages and challenges of ownership.

Owning a second home that is used to generate rental income may sound like an easy way to make money. It isn't. While the profits can be attractive, the problems may become quite difficult from several standpoints. Here are a few considerations to think about before you sign the papers for a rental property purchase.

1. Making the mortgage payment can be tricky. Don't count on renters to consistently make each monthly mortgage payment on your rental property. Renters may prove unreliable, they may become unemployed, or your property may sit empty for weeks or months between tenants. During those times you will have to make the mortgage payment in addition to any regular monthly expenses you may have, including your own mortgage or rental fee.

2. Budget monthly cost adjustments. Starting with a fixed budget for the rental property does not mean your expenses won't increase. It is best to get a fixed mortgage rate if possible. Otherwise, with a variable rate, your monthly payment may vacillate and you could end up strapped financially in struggling to pay for two homes if the rates shoot up or your tenants move out. When estimating a long-term budget, set projected fees a little higher than expected so there will be no unpleasant surprises later.

3. Check out your tenants carefully. An irresponsible tenant may fail to pay the rent on time or at all, for that matter. Breaking a lease may result in legal fees for recovering past-due rent or damages, as well. Plus, residents may not take care of the property or its fixtures, resulting in damages that will cost the owner time and money to repair them. Some owners require applications, copies of bank account statements, and verification of income, as well as a signed lease. References from previous landlords may also provide indications of whether these applicants will be trustworthy residents.

4. Learn how to fix things yourself. Take a class on window replacement or laying a tile floor. Buy a repair manual and learn to change fuses, patch walls, and paint ceilings. Doing these things yourself can save a lot of money that would otherwise be paid to contractors. You also may save time in waiting for an appointment to get a professional person to take care of the problem.

5. Keep up with building codes. Make sure the dwelling is fitted with up-to-date electric wiring and water pipes to meet current residence codes. Getting reported by tenants for pest problems, like mice or insects, may bring in the local health department and lead to citations or fines. Maintain the property for neatness by ensuring the grass keeps cut and weeds don't grow up. You'll need to replace broken windows to keep the weather from damaging woodwork or walls, and fix the roof to prevent leaks.

Owning a rental property may not be pie in the sky, but it can provide a lucrative income. Just be sure you carefully plan for the possible problems that may arise, and weigh benefits against risks.

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