You may have already considered buying an income property as a long-term investment. But as with any investment project, you need to evaluate your income and expenses carefully to ensure that your investment is profitable. It’s just like starting your own business. To help you make your decision, here are a few advantages and disadvantages of owning an income property.

The advantages of owning an income property

The advantages of owning an income property are mainly financial.

Developing assets

An income property, such as a plex or multi-tenant building, is an investment whose value is constantly growing. In fact, a building rarely loses resale value. So it’s a safe investment. What’s more, once you own your first building, you can use the leverage to expand your rental portfolio. We explain how to use this capital generator in our article on leverage.

Regular monthly income

One of the advantages of an income property is that it generates monthly income from rents, parking, garages, laundry, etc. These revenues finance the building and pay the mortgage. These revenues finance the building and pay the mortgage. Assessing profitability is simple. Start by accounting for the property’s income. Then list your expenses, including mortgage, property taxes, insurance, building management fees and any other costs you may incur. Deduct these expenses from the income, and you’ll easily see whether you’re running a surplus or a deficit.

Tax deductions

Certain expenses related to income properties are tax deductible. These include current expenses such as property taxes, insurance, maintenance costs, management fees and utilities that are the responsibility of the owner. Capital expenditures are also deductible as depreciation. These can be substantial, such as roofing or kitchen renovations.

Photo credit: Nathan Van Egmond

The disadvantages of owning an income property

The disadvantages of owning an income property often lie in management and responsibility. However, good organization can easily overcome these challenges.

Unforeseen expenses

Owning an income property comes with many responsibilities, including managing unexpected expenses. It’s the one that poses the greatest risk. This can include a plumbing breakdown or any other unexpected emergency repair. That’s why it’s important to always have an emergency fund to deal with such situations without jeopardizing your financial health. Bad tenants are, of course, another risk for income properties. Which brings us to the next point.

Managing difficult tenants

Tenant management is a scary topic for prospective owners of income properties. Some fear that tenants won’t pay their rent or will damage the property. Rest assured. These situations are quite rare if you’ve done your due diligence and credit investigation properly.

Renovations can also be advantageous, as they increase the value of the building, the cost of monthly rents, and the quality of the tenants.

Taxation of rental income

Your net rental income is added to your taxable income. This income could therefore limit your entitlement to certain government benefits. It’s important to calculate the pros and cons, and to work with an accountant who can advise you and make sure you get the deductions you’re entitled to.

Find an income property that’s right for you with the Jean-Guy Ayotte team

Get advice from the Jean-Guy Ayotte team to find a rental property that suits your budget and your goals. Our team will make sure to list the pros and cons with you.

Make an appointment now with one of our real estate brokers to evaluate your income property purchase project. Photo credit: Christian Koch