Investing in a rental property seems like a quick and easy way to supplement your income.
Between having a passive income and the equity built by owning a second property, there are many benefits to owning rental property.
However, being a landlord is not without its challenges.
Although rental income may be classified as a passive income, it still involves responsibility and actionability on the part of the property owner.
While the challenges of owning rental property should in no way deter you from following this dream, it is important to understand the struggles you may face when you become a landlord.
Here are 3 significant challenges you are likely to encounter:
1. Repairs and Maintenance
When you own a rental property, you may be called on for an emergency repair. Because you own the building, you are responsible for maintaining a certain standard of liveability for your tenants.
In fact, landlord and tenant laws require that serious issues be repaired quickly.
The need for repairs and maintenance can happen suddenly, meaning that you must be available (or have the funds available) to carry them out right away.
For example, you could get a call at midnight from a tenant whose plumbing has burst and is flooding the kitchen or basement.
As a landlord, you need to have the flexibility of time and money to address repairs and maintenance.
2. Dealing with Tenants
It’s likely that you will have most of your tenants pay their rent on time, respect your property and the neighbors. However, at some point, you’ll have a problem tenant.
There are laws that protect tenants from wrongful eviction, so there is a process you have to follow in order to remove them from your rental property.
And if you do, you may have to face repairs and renovations that the damage deposit won’t cover.
Likewise, you may have tenants who up and leave without paying rent. It’s possible to take them to small claims court for the money owed, but sometimes the cost of doing so outweighs the benefits.
To prepare yourself for trouble tenants, familiarize yourself with your local eviction laws.
Also, draw up a detailed agreement for the tenants to sign in lieu of allowing the standard rental contract to dictate the terms of agreement.
3. Paying Taxes
Since rental properties generate income, there are some extra tax implications involved.
While it may seem obvious that you are required to pay taxes on this income, one overlooked aspect of owning rental property is property tax. If you own two properties, a primary and a rental, you could be dealing with two property tax payments.
However, when it comes to filing your taxes, there are certain expenses related to renting a property that you can claim against the net income you earn from collecting rent.
Some of these qualifying expenses include:
- Mortgage interest
- Repairs and maintenance
- Property management
You can also claim capital expenditure depreciation expenses if you have acquired a property that wears out as it is used over the years.
Even though you cannot deduct that cost of the property from your net rental income, you can deduct their cost over a period of several years – since the property may wear out over time.
The Bottom Line
Like any challenge in life, those associated with owning rental property can be overcome.
You can be a successful rental property owner – as long as you accept and are prepared for some of the disadvantages.
Keep these challenges in mind as you prepare to embark on this lucrative and exciting venture!