Should You Invest in an Income Property?

Invest in an Income PropertyInterest rates and mortgage prices lower than they’ve been for years, and as a result, more and more people are looking to invest their money in income properties—in other words, real estate purchased with the sole purpose of making money.

The idea of buying a budget house or condo, finding tenants, and collecting monthly rent seems like a very attractive option to many people looking to invest their money, especially considering the turbulent state of the stock market. That said, much like making any investment, there are both pros and cons to consider before purchasing an income property.

Related Posts:
Stability continues in Canada’s resale housing market
3 ways to deal with rising mortgage rates

Here are a few things to keep in mind before purchasing an income property:

You receive a guaranteed monthly income.

Receiving monthly income is undoubtedly one of the most attractive reasons to invest in real estate. Ideally, after making your property’s down payment, the rent paid by your tenant(s) will take care of the rest. Once the property’s mortgage is paid off, you can either continue renting and receive monthly profits, or re-sell your real estate.

You must accept the responsibilities of being a landlord.

On the flip side, just like your own home, rental units require regular maintenance, and often emergency repairs. It’s your responsibility to ensure that your tenant’s living conditions in your property are safe and comfortable.

Moreover, tenants can present huge challenges to landlords by not paying their rent on time, receiving noise complaints, or destroying property.
Some investors may opt to hire a property manager or superintendent to deal with such issues, but keep in mind that this will involve paying a salary, therefore lowering the value of your investment.

The real estate market is unpredictable.

In an ideal scenario, you would purchase your property, pay it off, and then sell it for twice as much. Unfortunately, the property market is volatile, and if you want to be a real investor, you must accept the fact that a house you purchase for $300,000 may be worth half as much in 20 years. On the other hand, it might double in value instead.

Moreover, though there’s a chance that your property may depreciate in value, it’s likely that you will still make a profit from it. For instance, suppose you make a $20,000 down payment on a $200,000 home, and pay off the remainder of your mortgage with your tenant’s rent. Even after considering maintenance costs, you will most likely be making a profit on your property, even if you sell it for half of what you paid for it.

As a landlord, you’ll receive certain tax breaks.

Though you’ll be responsible for certain maintenance costs, you can also look forward to reducing the taxes you owe by deducting the following   expenses from your income:

  • property taxes
  • mortgage interest
  • utilities that are included in rent
  • property maintenance

Ultimately, just like investing in stocks or bonds, purchasing an income property is a gamble. Though real estate has the potential to reap major financial rewards, it runs just as many risks—a fact that any real investor must be willing to accept.

About Realty Drama