The Financial Benefits and Potential Risks of Rental Property Investment

Any investment you make, whether it’s a stock or a mutual fund or cryptocurrency or real estate, comes with both financial benefits and risk. If you want to earn money in the short-term and the long-term, you need to have a clear understanding of what you expect to gain and what you could potentially lose. Balancing the risks against the rewards is part of being a smart investor. 

When we talk about real estate in Memphis, you can be assured that the benefits and advantages often outpace the risks. This is a strong market, it’s easy to enter, and there’s a growing pool of qualified tenants who are always looking for well-maintained rental properties in desirable neighborhoods. 

Let’s take a look at the potential financial benefits and the potential risk of rental property investment. 

Financial Benefits to Real Estate Investing 

The first benefit is your potential cash flow. That’s the money you’ll earn on a consistent and recurring basis as long as you have a resident in place. Your tenants are paying rent to live in your property, and the longer you hold onto this investment, the more your rental income grows. You can expect rental values to increase with the market as well as when you make improvements and upgrades to the home. 

In addition to the short-term cash flow, there’s also the appreciation that builds over the long term. Whether it’s a condo, a single-family home, or a unit in a multifamily building, the home value will grow. When you’re ready to sell or interested in using the equity that’s accumulated, you’ll find that your property is worth more than it was worth when you bought it. 

Don’t forget the tax benefits. Owning a rental property means you can take advantage of several tax deductions. You can claim your property’s depreciation, deduct your mortgage interest, and write-off your property management fees and maintenance costs. 

Potential Risks to Real Estate Investing 

There’s no way to know how the market will perform. You could find rental values and home values slipping. There could be a sudden economic shift that makes paying rent difficult for your otherwise reliable tenants. 

Much of the risk that comes with real estate investing is completely out of your control. However, there are some potential downsides that you can easily mitigate with planning, knowledge, and the support of an experienced Memphis property management team. These risks include: 

• Legal mistakes. Not understanding fair housing laws or security deposit requirements could get you into trouble legally. 
• Deferred or unreported maintenance. Without a strong preventative maintenance plan and a willingness to respond right away to routine repairs, you could see your investment property deteriorate and any repairs would be more expensive than they need to be. 
• Tenant disputes and conflicts. The risk of a bad tenant is huge; you could find yourself chasing down late rent, dealing with lease violations, cleaning up excessive property damage, or having to evict. 

The best way to avoid these risks are with good tenant screening, solid maintenance plans, a strong set of investment goals, and a property management partnership. 

If you’re thinking about a real estate investment but you’re not sure the risks are worth the rewards, talk to us. We’d be happy to answer any questions and provide any additional advice. Contact us at CrestCore Realty.