15 Reasons Buying a Rental Property Might Backfire on You

If you're looking to line up a steady stream of ongoing income, then buying a rental property is a good way to achieve that goal. But while you might think you'll enjoy owning a rental property, you might also end up sorely regretting that decision and wishing you'd gone a different route. Here's why.

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Although home price gains have slowed in recent months, home prices themselves are still quite high. If you buy a rental property, you might end up spending a lot on that investment. And that could mean leaving yourself cash-flow constrained.

Mortgage rates have risen a lot this year. If you're unable to purchase a rental property in cash, you could get stuck with a higher borrowing rate. The result? Higher monthly payments you have to grapple with and less opportunity to cover your homeownership costs in full via your rent payments.

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You may decide to buy a rental property in cash to avoid taking out an expensive mortgage. But in doing so, you risk tying up cash you want for other purposes. That could mean missing out on the chance to invest elsewhere, such as in stocks or REITs.

Buying a rental property doesn't guarantee that you'll find tenants. And even if you manage to sign your first lease pretty quickly, there's no guarantee you won't struggle with vacancies down the line. This holds true even if you buy in an area with a strong rental market.

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A tenant you rent to might look good on paper, only to do a poor job of paying rent. Or you might rent to an otherwise reliable tenant who falls on hard times and can't pay. Either way, you're the one who loses out in that situation.

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Some tenants are just plain hard to please. Winding up with a tenant constantly moaning about their home not being perfect can cause you a lot of unnecessary stress and aggravation. Plus, you could ultimately have to spend extra money and time on home repairs that aren't necessarily essential.

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There's a reason landlords commonly collect a security deposit at the start of a rental term: You're protected in case your tenant damages your property. But a tenant could still wreck your rental so badly that their security deposit, ultimately, only covers a fraction of the damage, potentially leaving you to cover the rest.

You may want to keep your rental pet- and smoke-free. You can't be there to watch over your tenants every day, so they could violate their lease, leaving you to deal with issues like hard-to-remove cigarette odors or pet hair in your carpets.

Usually, there are penalties involved for breaking a lease early. But that won't necessarily stop a tenant from doing that. As such, you could wind up having to scramble to replace a tenant to keep your rental income flowing.

ALSO READ: 3 Easy Ways to Increase Your Rental Income

Whenever you own real estate, there's always the chance of facing higher property taxes over time. But if yours go up a lot, it could eat into your profits. And sometimes, it's hard to predict the extent to which you can anticipate a tax hike.

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There's a difference between insuring a home you live in yourself and one you rent out for money. And the cost of the latter could be more than you bargained for. Higher insurance costs could whittle away your profits and be a burden on a whole.

Maintaining a rental property could be more work than anticipated. And you may have to spend extra money outsourcing the tasks you can't manage yourself. That could carve into your profits and cash flow.

ALSO READ: Why We're Doing More Home Maintenance Ourselves This Year

When you rent out a home to someone, you're obligated to address repairs in a reasonably timely manner. But that could mean paying a premium to bring contractors in quickly. And that's an expense that could prove problematic.

Owning a rental property could mean spending more time than expected on things like upkeep and administrative work. That could lead to a scenario where you're constantly working and feel burned out. This holds true even if you end up with a cooperative tenant who pays on time.

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If you know off the bat that you don't have a lot of time to dedicate to overseeing a rental property, you may decide to outsource that task to a property manager. But you may fall victim to sticker shock once you see what a property manager wants to charge you.

Of course, the cost involved will depend on various factors, including the location of your rental property, its condition, and the number of tenants living there. Regardless, you may end up spending a lot more than you want.

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There's much to be gained by owning a rental property and hanging onto it for many years so it can appreciate. But before you rush into buying a rental property, consider the drawbacks involved. You may decide there's a better way to invest your money and meet your financial goals.

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