There’s no doubt that the rental property market is currently one of the most lucrative in today’s economy. But there are some things that you should keep in mind before you jump into a potentially profitable investment opportunity.

What Is a Rental Property?

A rental property is a building, group of buildings, or other property that generates income by providing living space for people who are not the owner. Usually, these properties are apartments, houses, or commercial spaces, and the tenants or subtenants will pay an amount of money each month to live in those properties.

What Are the Types of Rental Investments?

Direct Investing: Investing in companies that own properties, such as REITs (real-estate investment trusts) and stocks of publicly traded property management firms.

Investing Through Agencies: Using a third party to invest in commercial real estate for you. Popular methods include investing with other individuals via syndicates or crowdfunding platforms, private equity groups, or online marketplaces.

Indirect Investing: Investing through a commercial real estate investment trust (REIT). The REIT buys and/or operates properties, then shares the profits with shareholders.

Pros of Rental Properties

  1. They can offer a potentially lucrative income stream. Owning investment property allows you to charge rent, which can yield an excellent return on your money.
  2. When done right, rental properties have low maintenance costs. Tenants are responsible for their own utilities, lawn care/maintenance, and potentially any repairs for issues that cause.
  3. Rental properties provide some tax benefits. The depreciation of the property and any mortgage interest you pay are usually deductible from your income for federal income tax purposes.

Cons of Rental Properties

  1. Unless you’re a real estate mogul or an experienced landlord, the property management headache can be daunting. You must manage your tenants and their problems, which is often a full-time job in itself.
  2. Rental properties may require hefty, ongoing investment. If the property needs maintenance or repairs (even if it’s due to tenant damage), you’ll have to pay for these yourself.
  3. Rental properties may depreciate in value over time.

It’s important to understand that there are no guarantees in real estate. Investing with confidence will help ensure that any scenario can be dealt with effectively.