Rental properties sound like a great idea, and many people have probably had the idea recommended to them when discussing investments. While there are many positives to investing in rental properties, sometimes the negative parts will overshadow the rest. Listed below are four reasons rental properties might not be a good investment.
A lack of cash flow
When you invest in a property, you have a mortgage to pay on that property. Not only that, but you also have insurance, maintenance fees, and potential homeowner association fees. On top of that, you have to factor in the interest rates on the mortgage.
If you add up all of those expenses, you may begin to see why positive cash flow could be a problem. You would have to ask a hefty amount for rent in some areas. That is impossible with some of the laws in place.
Lack of privilege to customize your home
You would think that as the property owner, you would be able to make any decision you want. Unfortunately, this isn’t the case in many cities.
Frequently, property owners find that they can’t raise the rent when they want or need to because the city has rent control laws. Other times, property owners run into the problem of their renters not paying rent at all. Some cities make it difficult to force a renter to leave when they’ve missed rent too many times. Not to mention, there are many zoning laws where permits are unavoidable to renovate or expand part of a home.
Lack of diversification
If you are putting all of your investment money into a rental property, you are likely unable to invest in other areas at that time. A lack of diversification leaves you with only one form of investment, which could be devastating if something happened that caused you to lose money on it. With other investment methods, you can have a variety of investments. If one fails, you have others to fall back on.
Lack of wealth of opportunities
As mentioned previously, if you put all of your investment money into a property, you are limiting what else you can invest in at that time. If the rental idea doesn’t work out, you’ll find yourself thinking back on all of the other investments that you had to pass up on because of your rental property. Those are opportunities that you aren’t likely to get back.
While rental properties may be an excellent investment for some, it is dependent on many other factors. Before jumping in, it is crucial to know the reasons why rental properties might not be a good investment.