It may seem like a good idea to purchase a home and use it as an investment property. After all, you can rent it out to people who want to live there, or even rent it as an Airbnb. But is buying investment property a good idea in this hot seller’s market? These pros and cons will help you decide for yourself.

Pro

Your investment can increase in value. If you’re smart and do your research, you can find a good deal on a house in an attractive area. Over time, the property value may increase significantly, helping you make a big profit when you decide to sell it.

Con

You need to find good renters. Investment properties require renters. You will either need to find and screen them yourself, or hire a management company to do it for you. Either of these options can be time-consuming and costly, but it’s worth it to choose people who pay their rent and won’t trash your place.

Pro

Investment properties offer passive income. Creating income is one of the best reasons to purchase an investment property. An income stream that requires little effort on your part is very compelling.

Con

You need a sizable nest egg. There are few options for a small down payment on rental property like those that are available on a main residence. Saving up 20 percent or more to pay down on an investment property can be daunting.

Pro

You can build equity. Owning property allows you to build equity, which, when you sell, can end up being a significant amount of money. With investment properties, the renters cover part or all of the rent, so you essentially build equity with someone else’s cash!

Con

Tenants can be unpredictable. You won’t know in advance if a renter will complain frequently, pay late or not at all, or be loud and destructive. No matter how good someone looks on their application, there’s a risk that tenants won’t be what you expected.

Pro

You can reap big tax benefits. Owning rental property provides a way to use write-offs to help your total tax bill. The mortgage interest, taxes, and certain repair costs to keep the property up-to-date are write-offs that can add up to a big savings at tax time.

Con

Taxes can suck away your profits. Even though you can deduct them from your taxes, a big tax bill can decrease your profits. Hefty tax increases on your property may make owning an investment property not worth the trouble, especially if the house is in a high-growth area.

Measuring the pros and cons of buying an investment property can help you decide if it’s the best move for your financial future. Only you can determine if the benefits outweigh the risks.

Good and bad credit home loan lenders can explain your mortgage options and help you on your homebuying path. Call us today!