Real Estate & Property Smart Investing

Here’s a look at the positives and the negatives of purchasing and managing rental property. If, after perusing these two lists, you decide that property management is not for you, professionals can manage your property for you.

Pros of Managing Rental Property

The positive aspects of renting property are as follows; a lot of these apply whether you hire a property management company or not:

• You own your own business.
• You’ll never be bored.
• You save the fees charged by a property management professional.
• Technology has made self-managing your properties easier than in the past.
• It’s a people business.
• It can be fun and challenging.
• You may enjoy it enough to make it your career and even manage property owned by others.
• After everything is set up properly, it’s not a lot of work.
• You have a choice: You can be completely or minimally involved.
• You can see and touch your investment.
• The business provides continual income rather than the one-time income from a sale.
• With creativity, you can purchase with little cash.
• You can keep a home you may want to move back to later.
• Renting properties is usually profitable.
• Renting property provides current or future lodging for your children.
• Buying your first property starts you on your way to purchasing more.
• Property values usually appreciate.
• You diversify your investments.
• There are great tax advantages.
• You can defer capital gains with a 1031 exchange
• It can be a second income.
• It can be a part of your retirement.
• You can use your 401k or other retirement plan to buy the investment property.
• It can be a long-term business.

Cons of Managing Rental Property

You may have days when you question why you purchased rental property and became a landlord. But then, when you arrange an appraisal and find that your property value has gone up, you’re probably pleased with the gain in value. The time, money, and effort suddenly are all worthwhile, and you realize that hard work really does pay off.

• It takes a lot of time in the beginning to set things up.
• There are many details you need to learn and understand.
• The initial outlay may be greater than with other investments.
• Your property may have a negative cash flow, especially at first.
• Technology is hard to keep up with and takes time.
• Reporting income and expenses on your tax return requires additional time and knowledge.
• There are many local, state, and federal laws.
• You will need to purchase more insurance.
• Like anything, there is always a risk involved.
• You can be sued.
• There are ways you can be taken advantage of.
• The hours are not 9 to 5.
• It is like having a second job, often without vacations.
• Dropping everything to respond to an emergency isn’t fun.
• Finding and dealing with contractors can be tricky.
• It is a people business, which means you have to enjoy talking to people.
• You listen to many complaints.

You can always hire a professional to rent and/or manage your property. This way you don’t have to deal with the emergency call in the middle of the night or all the problems that arise from dealing with different types of people. You let them take on the time-consuming tasks while you receive the income.

Overcoming the Negatives

To overcome the negative aspects of managing rental property, consider these tips:

Set aside the time. Knowing the time commitment in advance and taking things one step at a time helps you in the long run.

Minimize or eliminate the risks by investing in setting up your business and tending to the details in the beginning. Also line up and meet with the professionals you will work with.

Keep your files concise. Be sure to keep all paper receipts in your property file. In addition, many software programs can assist you with your recordkeeping. Invest in a scanner and digital camera.

You can occasionally trade with friends who own property by taking turns covering for one another while taking vacations. In some states, you cannot pay your friends for their time unless they have a real estate or property management license, but you still have options.

Ask around and do your homework before you hire contractors. Most states require a license to do a trade. You’ll probably find some hints and tips on what to ask before you choose the right one for you. If you have friends who own property, ask them whether they will share some of the names of their contractors.

Carry plenty of insurance and be prepared to be sued. Always look at your property from a safety and liability angle.

Take workshops on how to deal with and listen to all types of personalities. Know that managing rental property is and always will be a people business.

Keep up with property-management laws by joining a local income property owner’s association in your area.

Continue to read books and take classes.

Expect things to go wrong and learn how to be proactive and creative in handling them. Turn negatives into positives and be ready for the next challenge.

Keep up with technology.

Purchasing rental properties allow you to retire a lot earlier than you’ve expected. Over time, you can make enough money to hire a professional management company, so you can leave town anytime you want without the worries.

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• When Real Estate Bubbles Form and Burst?
• How to Purchase an Investment (Rental) Property
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