One way to earn passive income is by investing in real estate and let the cost of the investment pay off itself over its useful life. An example comes from leasing out the property for use by others. Before actually leasing your property, it is important to understand that there are positives and negatives to leasing out your home. Making this decision to lease out your home could have a major effect on your financing as well as credit history.
The United States is a country that has seen its fair share of real estate booms as well as busts where most Americans decided to take the plunge and obtain properties amid the blast time frames however after the market slammed, they wound up with property they could not afford. This affected millions of Americans.
If you happen to have a property which you rarely use, one option to consider is to lease out the property not only to earn rental income but also brace against future shaky trends in the real estate market. This alternative would be much better than the option of selling it or risking foreclosure.
The following are other pros and cons to consider:
- Like what the opening sentence of this article alluded to, leasing is a way to earn extra income and as long as the rent is set at a reasonable price reflecting market trends, you should be able to cover mortgage payments and other expenses.
- Leasing helps to hold a property down especially during periods where the market is undergoing a bust as this prevents the negative options of selling or foreclosure. When the market recovers, your property also stands the chance of attracting higher values.
- The older the mortgage is on a rental property; the more favour it attracts to your credit viability.
- The burden of mortgage payments is shifted onto the earning of rental income and it relieves the income from other sources such as your earned income.
- One thing that every property owner should make an effort to understand is that real estate busts have a negative effect on the housing market so the values of the homes are always affected. This might lead to you the owner owing more money on a property than its worth.
- The amount to be charged as market rent often fluctuates which makes it difficult to correctly affix a price that best suits the property. As a result, most home owners find themselves with property that produces less rental income than expected and the homes can often sit idle for months if the rent price is not in line with market trends.
- Leasing out your property is one activity that is energy draining. Not only do you have to screen applicants but you must make yourself available to handle any complaints or maintenance duties.
- A rental property that has mortgage on it is going to be reported to the credit bureau and this shows up on your current liability and also affects your credit rating and ability to apply for financing.