Owning investment properties is a wolf in sheep’s clothing.
On one hand, it’s a powerful financial strategy that increases income, opens doors to tax breaks, and opens the door to the landlord-investor lifestyle. On the other hand, it’s a lot of money, time, and effort up front.
We’ve decided to help make the decision a little easier for you. In today’s article, we’re talking about the pros and cons of multiple investment properties. Let’s get started!
Pros of Owning Multiple Rental Properties
Having multiple rental properties can provide a steady stream of rental income and can appreciate in value over time. Depending on the location of the investment property, owning multiple rental properties can lead to potential tax advantages. Here are some of the pros of owning multiple properties.
Increased Rental Income
Property appreciation is a major factor in increasing rental income over time. If you are able to acquire rental properties in areas with increasing values, you can increase your rental income by increasing the rent on those properties.
Tax Benefits
Rental properties can provide a major tax break, allowing you to keep more of your income. Real estate offers very lucrative tax breaks, allowing a property investor to keep more money.
Bigger and Diversified Portfolios
With more properties in its portfolio, an investor can take advantage of more property-level investment opportunities, such as appreciation in the highest-value properties. Larger portfolios offer the potential for even further diversification both within the property class and into other asset classes, allowing for smoother returns.
Rental Income Reinvestment
You can reinvest the money from your rental income into improvements on property investment. It includes new, energy-efficient windows or new appliances. You can even reinvest in new rental properties. Reinvestment in your rental properties means more money in your pocket later.
Cons of Owning Multiple Rental Properties
Owning multiple investment properties can be a great way to diversify investments and generate financial independence. However, this type of ownership can come with a few drawbacks as well. Here are the main cons of owning multiple rental properties
Huge Financial Burden
Depending on the properties and locations, initial costs such as the purchase price, mortgage payments, and real estate taxes can be daunting. There may be long-term vacancies, difficult tenants, or the need to cover eviction defense costs.
Increased Expenses
The more rental properties one owns the more expenses that have to be paid out each month. Repairs and hiring home renovation services can be expensive. There may even be legal expenses associated with the properties such as arbitration or eviction procedures.
More Capital Required
Owning multiple rental properties requires a substantial amount of capital. When you invest in an extra rental property, you will need the capital to purchase it. It also includes any additional costs associated with it such as taxes or legal fees.
Complex Tracking
Owning multiple rental properties can be complex with regard to tracking all of the financials, taxes, and paperwork necessary for each. It can be difficult to stay up to date on local and federal laws and regulations for each property. Owning multiple rental properties can be complex and difficult to manage.
Learn the Pros and Cons of Investment Properties Before Making a Decision
Real estate is always a good investment, however, owning multiple investment properties can be a costly endeavor. Consider the pros and cons carefully before making a decision.
You should also do extensive research to help you make an informed decision. For more advice, contact a real estate advisor today.
Head over to our blog for more interesting reads like this.