First, it’s important to note that expected rental income can be used in calculating the mortgage you will be taking on – but only in part. Usually an FHA (Federal Housing Administration)
Here are a few benefits you might enjoy as a landlord …
Added Income. If your investment property is located in an area where rentals are lucrative, you could see a great uptick in your overall income on an ongoing basis.
Tax Benefits. Mortgage payments and your home equity interest could carry some excellent tax advantages. Consult with your tax advisor to find out the details.
Equity Growth. The equity growth of an investment property is typically fast compared to other means of “forced” savings.
Relative Simplicity. For properties with up to four units, the mortgage approval process is similar to obtaining a loan for a single-family home. Properties containing more than four units are considered commercial properties and carry a different type of loan process.
… and here are a few drawbacks that you might want to consider.
Vacancies. It can be hard to keep tenants in the long-term. You will want to consider the location of your property and turnover rates in that area carefully before you make the decision to purchase.
Collections. What will you do if your tenants won’t pay their rent? You might have to seek legal action against them. Screening your tenants carefully is a must.
Repairs. When something breaks in your own home, there isn’t necessarily any urgency to fix it if it’s non-essential. But as a landlord, you’ll want to make sure that you have a plan to make repairs in a timely fashion.
Management. If you don’t live near your investment property, it may be necessary to hire a property management company to keep an eye on the place and assist in renting it when it turns over. If you do so, a property manager will need to be considered as part of your expenses.
Buying an investment property can make sense depending upon your financial picture. To get a good idea of how carrying an extra mortgage will affect your finances, talk to a loan officer to get a clearer idea of whether an investment property could be the right decision for you.