As a property owner, what benefits do you get from renting your property out ? As with all property ventures, there are pros and cons, outright advantages and some caveats. Being the owner of a rental property is undoubtedly something that can offer numerous advantages. However, it is also something that should not be entered into unadvisedly. You need to know what you’re dealing with. And, it is definitely wise to, therefore, secure high-level rental property management services to properly handle the potential drawbacks so that you can enjoy the benefits of property ownership.
In this article, ACCL Property Management will begin by discussing the enormous benefit of being a rental property owner. They will then highlight the potential challenges involved with the venture. You will also see how good property management can help you deal with both.
Benefit: A Strong Source of Income Source Through Rent
This is obvious, and it is the very reason that people rent their properties to begin with – you can generate a steady stream of income from your renters. If properly managed, this revenue can be very profitable. It is worth noting, however, that you may not necessarily earn your desired rate for your property. Every property owner has an ideal amount they would like to make from their tenants on a monthly basis, but the market sometimes interferes with their plans. You may end up having to reduce the rent to bring in tenants. Or, you may even have to deal with the property standing empty for periods of time. It is best to be realistic about these possibilities so as to manage your expectations.
The good news, however, is that even if you only end up getting a portion of what you originally asked for, it can still work out extremely well. Say, for example, you want to rent an apartment for 12 months of the year at $1,000 per month. That would add up to $12,000 per year. And, let’s say you’ve calculated that as being the amount you need to generate a modest profit on your real estate, which is currently costing you $8,000 per year in mortgage payments and upkeep. Circumstances get in the way though, and you have to bring the rent down to $750 per month, which will earn you $9,000 per year. On the other hand, there may be a slight slump in the market, meaning you only manage to get a tenant into the premises for nine months in the year. You are not reaching the level you had hoped for but you are still covering costs and making a small profit. Maintaining good property management at this point can then ensure that you are in a good position to profit more fully when the market swings in your favour.
Benefit: Additional Long-Term Income from Increasing Property Value
In addition to the monthly rental income, you also have an asset that should increase in value over time. This will mean that you can get to the point where you can charge an even higher rent in the future, or you can sell the property at a profit when you are ready to do so. The difference between owning a property as a home and keeping it as a rental property, is in the balance between liability and benefits. Homeowners are generally not making income from their property, as they service their mortgage payments and keep up with maintenance and repairs. Rental property owners, on the other hand, also have to deal with those costs, but they are offsetting them – and even generating profit over them – through their rental incomes. When the time comes to sell, which of the two will be in the best position to make the most of the sale. Even if they sell for the same amount, assuming their property has the same value, the homeowner will be in the worse off position because of the many unprofitable dollars he/she has sunk into the property. Unless there has been a massive increase in the value of the property since the initial purchase that is big enough to amortize the considerable long-term costs of maintaining the property, the homeowner is likely selling at a loss in real terms.
A rental owner, on the other hand, provided costs and rental incomes have been managed properly, and rental has kept up with the rise in property values, is in a good position to sell profitably when the time comes. But, this all depends on a variety of factors. For example, the following factors may influence the price:
- The maintenance of the property,
- Any improvements that were made to the property,
- The general real estate value in the neighbourhood, and
- The condition of the market as a whole, for example.
You have no control over external factors such as the real estate market or events that might cause sudden or gradual changes in the desirability of your area. However, while keeping an eye on these things, you can still do your best to manage, maintain and improve your own property. And, in so doing, you will ensure that, even if you don’t come out with a giant profit at the end of the day, you can still make a respectable return. Professional property management is an essential requirement in this regard.
Benefit: Returns on Non-Financial Investment
As a property owner, there are many things that you can do to increase the value of your property to enable you to increase your rental, without any substantial financial outlay. Landscaping, upgrading, repainting and refinishing will all help to improve the marketability of your property without incurring significant expenses. If you enjoy home improvement projects, this can even be a hobby for you. Or, you could hand it over to contractors or place it in the hands of your property management company. Whatever the case, these little improvements go a long way. Doing them regularly will not only enable you to charge more rent, but will make the property more saleable in the long-run.
Challenge: Tenant Risk
This is probably one of the biggest concerns among would-be rental property owners, so let’s address it. Managing tenants can be tricky as there are no guarantees that they will be good people who will look after your property and pay their rent. Even great tenants may find themselves unemployed and unable to pay further down the line – these things do happen after all.
What’s just as bad as having a bad tenant? Having no tenant at all! This is a risk that also needs to be factored in, at least some of the time.
So, how do you get around this challenge? Well, that’s where the services of professional property managers can really benefit you. Instead of having to worry about your tenants and their rent bills, you can leave the job to professionals who are dedicated to ensuring that your property is safe, maintained and occupied by reliable people. Property managers understand all the legal processes involved with the rental industry and have the infrastructure and training to manage tenants. They also know how to vet tenants properly, including checking their credit records and talking to previous landlords. This helps ensure that you only get the tenants you want.
Challenge: Concentration of Assets
Investment in a rental property amounts to a major concentration of assets. It takes a high proportion of the income of most people’s net worth to fully own a rental property. This of course means that there is no diversification, which is considered one of the keys to successful investment. You may literally be putting all your eggs in one basket. It is, thus, wise to stop to consider whether investment in a rental property is a good idea. First, ensure that you have enough wealth to spread across a few investments, so that you are not overly dependent on one of them in particular.
Challenge: Taxes, Fees and Insurance
Whether or not your property is occupied by a tenant, you are still incurring costs on it in the form of taxes, maintenance and insurance. These are unavoidable costs. But, a good aspect about them is that they are predictable (with the exception of maintenance, which can be more variable). You need to make sure that your rental covers all of your fixed and predictable costs, as well as leaving decent leeway for costs you can’t predict, while also generating some profit. Your rental managers can help you set the right price for your property that will keep the costs covered, while keeping up with the demands of the market.
When weighing the benefits against the challenges, it still appears that investment in rental property is worthwhile. You can generate current income while nurturing a long-term investment and you can add value to the investment through non-financial efforts, (known as “sweat equity”). There are some challenges involved. But, these can be successfully managed with the help of a good property management company. If you are already an investor in rental property, or are looking to get started, the best thing to do is to secure the services of a company that specializes in rental property management. With ACCL Property Management you will find the best solutions to all your investment and income property management needs. All properties, large or small, private or commercial, condominium or freehold, can achieve the best possible short-term profitability and the maximum long-term return on investment when they benefit from the professional property management services we can deliver, not only today but every day.