A number of reasons contribute to becoming a landlord. You may be looking for another easy source of income or having difficulties selling your home,
A number of reasons contribute to becoming a landlord. You may be looking for another easy source of income or having difficulties selling your home, so renting out your home becomes a convenient option. Regardless of your situation, while there are a lot of benefits, drawbacks also come along that should be considered before deciding to use your home as a rental. Here are a few drawbacks of renting your home.
List of Disadvantages of Renting a Home
- Start-Up Cost
- No Guaranteed Appreciation
- Tenant Risk
- Variable Maintenance Cost
- Concentrations of Assets
- Unqualified Renters
- Additional Cost
#1. Start-Up Cost
Purchasing a property for your investment is only the first step to get your rental ready for tenants. This is because if you purchase an older building, you may need to make considerable repairs and updates before you begin marketing it. Every state has its laws for the protection of tenants that landlord must abide by. Landlords are required by the law to make any necessary installations of safety features in each rental unit.
#2. No Guaranteed Appreciation
Typically, the value of your rental property will continue to grow over time, but the real estate market can be unpredictable, so there is a chance you may end up losing money on your investment. In California, the rental property owners are on a good trail, because the demand has been high and there are no showing signs of declining any time soon. In order to avoid financial consequences, you should stay knowledgeable about the local market and keep an eye on the supply and demand for rentals along with any changes that are absolute to occur over the next few years.
#3. Tenant Risk
There is no guarantee that your tenants will pay the rent regularly. Even during the best of times and with the best tenants, the flow of revenue is still not guaranteed.
Certainly, sometimes you will have a great tenant who will pay the rent on time for years, yet it is never guaranteed. There are some tenants who won’t pay regularly, and others may not pay at all. This will lead you to be out of rent for several months and you will also have to deal with their non-payment and eviction.
#4. Variable Maintenance Cost
Just like any type of real estate purchase, there will be some hidden issues with your rental property that can cost you a hefty amount over time. Being the owner of the property, you are responsible to take care of roof leaks, bad plumbing, or safety code violations that become obvious after you have purchased the property. Such issues hold the potential to deteriorate your rental income, but this is something every real estate investor has to face. Make sure to get extensive inspections done by the professionals before purchasing to reduce the risk as much as possible.
#5. Concentrations of Assets
Another drawback for most people using their homes as rentals is that owning a rental property is a serious concentration of their assets. It will take a considerable amount of an average person’s net worth to fully own that real estate. The problem is, the concentration is not diversified at all. This investment is in a specific house of a specific block of in a specific neighborhood, if the neighborhood’s or even the block’s value decreases, you’ll lose a lot of money; and also even if something happened to the house that insurance is not sufficient to manage. In fact, by owning a rental property, you have bound yourself to the local real estate market tightly.
#6. Unqualified Renters
You will also interact with people who are not worthy of loan and credit. They may lie to you on an application and waste your time. Around 20 percent of applicants lie about their background check and credit history before getting the screening reports.
#7. Additional Cost
You have to plan on increased expenditures for legal documents, legal fees, CPAs, business formation, vacancy, advisors, and much more. A rental is, in fact, a business that comes with added business expenses.
These are some of the drawbacks related to renting out your home. However, by making right decisions at the right time and staying in touch with a professional realtor and home inspection teams, you can lower some of these issues and earn satisfying revenue on your investment.
Author Bio: Marina Torres works as a full-time content writer and loves to write about how to make life and our surroundings better for emitting a positive vibe from ourselves. She is currently working at Irvine homes For Sale where she is pursuing her career at its best.