If you’ve ever considered investing in real estate, you’ve likely thought about the value of purchasing a rental property. While this can be a way to earn income each month, it’s not the right choice for every investor. As the owner of a rental property, you’ll have certain responsibilities. There’s also the potential for things to go wrong. Becoming a landlord is about more than owning a property you rent out to tenants. It’s a role that requires careful consideration and a significant amount of knowledge. Before deciding to become a landlord, it’s important to learn the pros and cons of owning and managing a rental property.
Types of Rental Properties
Before you embark on your real estate investment journey, consider the different factors associated with various rental properties. Renting out a detached single-family home for long periods of time has different requirements than renting out a condo. These are the most common types of rental properties in Massachusetts.
- Single-family rentals: These properties usually consist of a single dwelling where a rental agreement may be signed each year and rent is paid monthly.
- Apartment buildings: Anything over 4 units is considered commercial property, requiring different funding types than a typical mortgage loan. Apartment buildings usually require significant routine maintenance. Tenants may be less likely to be long-term renters than in a single-family home.
- Condos: Ongoing costs of a condo include HOA fees and the potential for added costs to repair or remodel common areas. As a landlord, you determine whether you include HOA fees in the monthly rent and have the finances to take on unexpected costs if they rise.
- Multi-family properties: Properties with fewer than 4 units that house multiple tenants can provide the property owner with income security if one tenant moves out. However, multiple rentals/tenants mean there are more responsibilities and potential expenses for the property owner.
- Vacation rentals: Airbnbs are a popular way to utilize a rental property and make more money than renting by the month. Often, vacation rentals rent out nightly or weekly for increased profits. However, this option opens up a property owner to significantly higher risks. It will also require a landlord or property manager to be present for frequent cleanings, and check-ins.
The Pros of Rental Properties
The real estate market in Massachusetts is booming. Thus, investing in a rental property can be a great way to earn extra money. These are some of the benefits recognized by real estate investors who purchase a rental property.
You Get Regular Monthly Income
This is the most obvious reason to invest in a rental property. If you choose a home that requires little or no repairs, you can allow tenants to move in quickly. If your tenants are paying you more than the amount of the monthly mortgage payment, you’ll earn the difference each month.
You Can Use the Property
If you choose to use your property as a vacation rental, you can use the property when you want to. In other words, if you’ve been dreaming of purchasing a vacation home you only use a couple of months during the year. Then, the money you make renting can help you pay for the property. This can be an especially attractive idea for buyers with the hope of eventually turning the rental into a retirement destination.
The Internal Revenue Service (IRS) allows you to deduct many expenses associated with a real estate property. Such deductions typically include:
- Operating expenses deducted from gross rental income
- Expenses related to improving the property
- Depreciation expenses
- Mortgage interest
The Cons of Rental Properties
A rental property is an investment which means it also comes with potential risks. While the benefits of owning a rental property might make it the perfect choice for some real estate investors, the role of a landlord isn’t for everyone. Before you decide to invest in a rental property, it’s important to consider these disadvantages.
As a landlord in Massachusetts, you have a duty to provide habitable premises. These requirements include:
- Heat: You must provide a heating system for the rental dwelling. Unless the rental agreement states otherwise, you’re also required to pay for fuel/electricity to provide heat as well.
- Kitchens: Kitchens must have a working sink, stove, and electrical hook-ups for the installation of a refrigerator.
- Water: While you can charge a tenant for water consumption if you meet certain legal requirements, you’re responsible for paying the water and sewer bill. You must also provide the facilities for heating water to a temperature between 110 degrees and 130 degrees.
- Infestation: Homes, common areas, and apartments must be kept clean and free from rodents, insects, and other infestations.
- Structural elements: You must maintain the foundation, floors, walls, doors, windows, ceilings, roof, stairwells, porches, chimneys, and all structural elements so as to exclude wind, rain, and snow; so as to be rodent-proof, weather tight, watertight, and free of chronic dampness, in good repair and fit for human habitation at all times.
- Maintenance of exits: Each exit used by the building’s occupants must be maintained and kept free of all snow, trash, and other obstructions.
Though many tenants seek a long-term place to live and take good care of their property, some can cause challenges. Some tenants may call on you frequently for minor problems or tasks that aren’t your responsibility. Others pay rent late or fail to pay rent at all. Thus. forcing you to go through an expensive court process to enforce an eviction. It’s also common for disrespectful tenants to intentionally or unintentionally cause damage to your property. Damage to homes can rapidly become so expensive that it outpaces your rental income.
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Learn More About Managing a Rental Property
Investing in a rental property is a big decision that requires careful consideration. It’s not an automatic guarantee that you’ll find tenants immediately. Also, there is always the potential you’ll run into unexpected costs. No matter what type of rental property you choose, ensuring you have the right kind of insurance coverage can help you protect your investment against unexpected risks. Rental property insurance is designed to help you protect your property against losses like property damage caused by tenants, loss of rental income, and accidents to additional buildings on the property. Contact the independent agents at LoPriore Insurance Agency today to learn more about getting the right insurance for your Massachusetts rental property.