"[Having rental property] ... is a calculation that requires careful analysis of the risks and rewards that come with being a landlord. Tax consequences, cash flow, management and maintenance costs, and, above all, the inevitable headaches that come with having renters. It all has to be put on the table and weighed." - Katy McLaughlin, The Wall Street Journal, January 21, 2021.
The idea seems like such a good one. You're thinking of buying a smaller house and not selling the one you have. Instead, you will turn it into rental property. Or, you and perhaps a few others decide to pitch in together and buy up residential property for rentals. What a wonderful solution to the inevitable cashflow strain which comes with retirement/semiretirement.
However, as The Wall Street Journal warns, that source of income is fraught with risk as well as headaches. To put it simply, when rentals go well, it's easy money. When the property taxes surge, the furnace goes kaput or the deadbeat tenants won't move or destroy the property, there could be lots of money going down a black hole. In addition, factor in sleepless nights.
Yes, there are those who thrive financially as landlords. Usually, they have the infrastructure of knowledge of real estate, handypeople who can do the maintenance, affordable legal counsel, a reserve of funds for increased taxes and the social skills to manage difficult tenants. Frequently they come to own a number of properties. So, if one or even a few become problematic, the others which are producing revenues can compensate.
Rental property, of course, represents an investment. No investment is without risk.
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