Owning property for rental purposes is highly profitable right now. The economics surrounding real estate purchases has gotten a lot of people to begin thinking about the pros and cons of home rental by owner. Unless you were smart and forthright enough to start purchasing rental property during the Great Recession in 2008, then chances are that now is your best opportunity for purchasing property for the purpose of renting it out to other people.
Looking at the Pros of Home Rentals by Owner:
To get a full picture of the pros and cons of home rentals by owner, let's start by examining the pros of general home rental. First of all, mortgage rates have grown to around 3.75% and 4.25%, meaning that you can lock in a lot of this cost for around 30 years. Even with modest inflation, you can be rest assured that you will be paying off your current debts with cheaper dollars in the future. Low fixed rate debt that is secured by real property is one of the best hedges against inflation, since the market value of your property and the rent you will be able to charge can increase with various factors.
If you have a seasonal rental, you can also use the property yourself for two weeks without jeopardizing any deductibility in terms of expenses. You could even consider treating a unit within your own property or home, such as an apartment or garage apartment as a rental, and then lay of a share of the mortgage interest and other expenses against that income, thus lowering your cost of living overall.
The Cons of Home Rentals by Owner:
The next step in examining the pros and cons of home rentals by owner, is to consider the negative part of the deal. The biggest caveat in this instance is that the real estate that you purchase will not be liquid. Even in a particularly hot sellers' market such as San Francisco or New York City, it can take a number of months for a sale to be completed, and if your timing is driven by certain unexpected needs, you might not get the best possible price. What's more, while the principal and interest parts of your mortgage may be fixed, there is no specific guarantee that taxes will not rise any faster than you would be able to increase your rent fees, or that your insurance premiums will not spike.
Finally, consider the fact that becoming a landlord isn't a lifestyle that will necessarily suit everyone. You might feel that you feel uncomfortable about increasing rent amounts, or you might disapprove of the idea in general, even if you are a reasonable and good landlord to your tenants. Remember, while it's okay to be friends with your tenants as a landlord, friendship can drag on the rate at which you might need to change rent agreements or raise the amount owed. At the end of the day, you need to be willing to put yourself first when thinking about the pros and cons of home rentals by owner.