What are the pros and cons of buying an income property?

Buying an income property can be a great way to invest in real estate for the long term and generate a monthly income. Like any investment, it’s important to look at the risk and return involved and consider all key factors. This infographic summarizes the pros and cons of owning an income property to help you make an informed decision.

The pros and cons of owning an income property

Pros

Diversification of investments

Having assets in different asset classes lowers your risk and will make your portfolio less susceptible to market ups and downs.

Passive income source

If your expenses associated with the rental are lower than the rent you collect, you will be able to draw income.

Tax benefits

The CRA allows you to deduct many related expenses, including insurance, interest on a mortgage, repairs and maintenance, property taxes, utilities and more.

If there is a loss due to your rental income being less than your expenses, this can be subtracted from other income sources.

Long-term property value appreciation

In the long run, if the property value increases, it will increase your net worth

Cons

The rental market can be unpredictable

Rental income can fluctuate with supply and demand. It’s also important to factor in possible vacancies.

Problematic tenants

Non-paying and destructive tenants are always a possibility, even when you check references. This can reduce your income and be stressful.

Cost of maintaining a property (expected or unexpected)

Landlords are responsible for costs associated with maintaining the property.

It’s important to have a contingency budget to account for unexpected expenses and depending on the age of the property, they could be more frequent or larger than expected.

Rental income is taxable

Any rental income is considered part of your personal income. This could put you in a higher tax bracket or bring a larger tax bill than expected.

Being a landlord is not for everyone

You will have to manage tenant relationships, find new tenants when necessary and maintain the rental property. Hiring a property manager is an option but will reduce your income.

Less liquidity than investments

If you need to sell the property, for any reason, it can take months to receive cash from the sale.