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Picture this: cash rolls in like clockwork every month, and you don’t have to do a bit of work to get it.
That’s the promise of rental properties. In theory, they are passive cash-generating machines that deliver you money every month with little to no effort on your part. In reality, they can be a real pain or, worse, a drain on your wallet.
If you’re serious about owning a fleet of income properties, you may want to read one of the many books available on the subject to uncover all the finer details. And if you’re interested in renting your house to travelers, read this article on how to turn your home into a profitable vacation rental.
For everyone else who is playing with the idea of buying an income property, keep scrolling for a rundown of the basics.
Not every property can be turned into a moneymaker. Some houses are destined to be duds. Before closing on an income property, consider all of these:
Once you find the right property at a price you can afford — bonus points if you pay cash — the next step is to figure out how you’re going to manage it.
Here, you have two choices. You can do it yourself, or you can hire a property manager.
Property managers will cost you some money, but you may find their services are worth the price. When the furnace in your rental goes out at 3 a.m., the management company will get the call, not you. The managers will also collect the rent, communicate with tenants and keep income and expense records. In addition, they typically oversee marketing the property and screening potential tenants. In other words, the property manager does all the work.
While hiring a property manager is the easiest way to maintain income property, some balk at the price. For a company to provide all management services from screening tenants to arranging for cleaning after they leave, you could be looking at a one-time fee equal to a month’s worth of rent plus a monthly cost of as much as 10% (or maybe even more) of the rental amount. Some companies may also require you to sign a contract that can lock you into their services and result in hefty cancellation fees if you try to back out.
On the flip side, managing your own property can be cheap but may make your life more difficult, especially if you end up with challenging tenants or have an older property prone to maintenance needs.
One positive of managing your own property is that you may be able to deduct any losses from your rental on your tax return. That’s an option not available to those with a property manager. However, check with your tax adviser for more details and to ensure you qualify. Otherwise, you could be setting yourself up for an unpleasant audit.
If you’re using a property management company, they will likely be responsible for finding good tenants for your property. If you’re doing it yourself, here are five tips to help find decent renters.
This post originally appeared on Money Talks News.
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