Pros of Rental Property Investment
Passive Income
Steady Cash Flow: Monthly rental income provides financial stability.
Supplementary Income: Ideal for those looking to earn additional income beyond their regular job.
Diversified Financial Risk: Provides another income stream besides salary or main business.
Capital Appreciation
Property Value Appreciation: Real estate typically increases in value over time, offering potential future profits from sales.
Area Development: Infrastructure developments like new transportation links, shopping malls, or utilities can boost property value.
Value-Added Improvements: Renovations and added amenities can increase both sale price and rental income.
Tax Advantages
Expense Deductions: Maintenance costs, repairs, insurance, and depreciation can be deducted.
Tax Planning Opportunities: Properly managing income and expenses can reduce tax liabilities.
Investment-Specific Tax Benefits: Certain real estate investments might qualify for tax incentives, such as BOI projects.
Management Flexibility
Lease Terms: Flexibility in choosing short-term or long-term rentals.
Adjustable Rent Prices: Ability to increase rent in response to market demand.
Personal Use: The option to use the property personally during vacancy periods.
Long-Term Wealth and Legacy
Asset for Heirs: Can be passed down to future generations, ensuring financial security.
Investment Portfolio Expansion: Start with one unit and expand as resources allow.
Retirement Income: Provides a stable income source post-retirement.
Cons of Rental Property Investment
High Initial Investment
Large Upfront Capital: Significant funds needed to purchase property, often requiring loans and resulting in long-term debt.
Renovation and Furnishing Costs: Necessary to prepare the property for renting.
Transaction Fees and Taxes: Costs such as transfer fees, mortgage registration, and specific business taxes.
Tenant Risks
Late Rent Payments: Affects cash flow and covers ongoing expenses.
Property Damage: Tenants might cause damage exceeding the security deposit.
Eviction Issues: Legal costs and time involved in evicting non-compliant tenants.
Maintenance Costs
Routine Repairs and Maintenance: Regular upkeep like painting and fixing broken items.
Emergency Repairs: Unexpected expenses like burst pipes or roof leaks necessitate reserve funds.
Upgrades for Competitiveness: Investments may be required to maintain rental value.
Vacancy Risk
Income Loss During Vacancy: Fixed costs remain despite the absence of rental income.
Tenant Acquisition Costs: Advertising and agent fees to find new tenants.
Rent Reductions: May need to lower rent to attract tenants, impacting expected returns.
Investment Illiquidity
Slow Property Sales: Converting property to cash can be time-consuming.
High Transaction Costs: Selling involves fees, taxes, and commissions.
Diversification Difficulty: Investing in multiple units requires substantial capital.
External Risks
Environmental Changes: Developments like nearby roads or factories can impact property value.
Policy and Legal Changes: Government regulations and law changes may affect costs and returns.
Economic Conditions: Recessions can lead to lower rental demand and income.
Management Burden
Ongoing Property Management: Time and effort required for regular care and administration of the property.
Handling Tenant Issues: Dealing with tenant complaints and problems can be stressful and time-consuming.
Legal Responsibilities: Must comply with relevant laws and regulations strictly.
