21 Jun The Pros and Cons of an Investment Rental Property
Owning an investment rental property can be a great way to generate passive income and build your wealth. However, all investments come with their own set of advantages and disadvantages. To be successful with your investment rental property, you’ll need to make sure that the benefits outweigh the risks. In this article, we’ll outline some of the significant benefits, risks, and rewards associated with renting out your property.
Thinking of Investing in a Rental Property?
These Are Some Of The Benefits:
A Potentially Stable and Consistent Revenue Stream
Generating a consistent monthly revenue can provide a stable income. If you’re considering investing in property, the monthly rent from your tenant can help cover mortgage payments, utilities, and property maintenance costs. If you crunch the numbers correctly, it can even lead to a profit.
Tax Breaks for A Higher Return on Investment
Certain tax deductions, such as property taxes, repairs, and depreciation, can be advantageous when you own a rental property. By utilizing these deductions, you can lower your taxable income and potentially enhance the return on your property investment.
If you are serious about property investments, it’s important to be aware of SARS’ tax incentive: for every five properties you purchase, SARS allows a tax deduction of 55% of the purchase price over 20 years.
Invest in an Appreciating Asset
As a long-term investment, property is generally expected to appreciate over time, although this is not guaranteed and varies based on factors like location.
You Can Retain Control of Your Investment
Owning a property gives you the power to make key decisions about your investment’s future. You have control over aspects such as rental amounts, maintenance, and property management, which can potentially lead to a greater degree of control and ultimately – greater profits.
Do You Want to Invest in a Rental Property?
These Are Some Of The Disadvantages
What Kind of Tenants Do You Have?
It’s important to note that having a stable revenue stream is not guaranteed unless you have tenants who pay on time. Even if you conduct thorough background checks and request a deposit, your tenants’ circumstances can change at any time, which could potentially impact your income.
In addition, problematic tenants who may cause damage to your property could end up costing you more in repairs, eroding your profit margin.
What if You Don’t Have Tenants?
Your investment rental property is only valuable as a rental if it is occupied. If the property stands empty and incurs costs, it can have a negative impact on your plans to generate passive income. Pricing your rental correctly and marketing it well can help avoid property vacancy.
Do You Have a Maintenance Plan For Your Investment Rental Property?
It’s important to create a maintenance plan to protect your budget from unexpected repairs. An older property may seem more appealing due to a lower purchase price, but it will likely require a higher budget for ongoing maintenance and repairs. Regardless of what you decide to buy, it’s crucial to understand the costs associated with maintaining its habitability.
Are You Prepared for All the Costs?
Purchasing a property involves upfront fees and costs, which can be even higher if you need renovations. You should consider bond registration or transfer fees, as well as the deposit. When you decide to sell the property later, you should budget for capital gains tax and estate agent commissions as well.
It’s important to consider market volatility in the future. Although property generally appreciates, the economy can take a downward turn, and there’s a chance you may not be able to sell at your desired price.
As the saying goes, without risk, there is no reward. However, it’s essential to weigh up your risks before entering into any property transaction. For professional property advice to maximize your return on investment, feel free to speak to our team of senior conveyancers and property experts.
Kindly be advised that AWD Law does not enter into litigation on behalf of clients. Our conveyancers specialise exclusively in the development of vacant land, property transfers, bond registrations, administration of deceased estates and notarial practice. Should you require assistance with a litigation, kindly contact The Legal Practice Council.
Contact AWD Law For Professional Property Advice before signing your Offer to Purchase.
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