The Pros and Cons of Buying another Residential Property

Purchasing an additional residential property can have pros and cons. Some people prefer to invest in residential property rather than putting any money in to commercial real estate. But before you get involved in buying additional retail property, whether it is developed or not, you should understand what you are getting yourself into. There are several things to consider before you put your money into an additional piece of residential property and, since it is such a significant investment, it is a good idea to review all of the potential situations you are facing if you decide to invest your money in this way.

Taxes

Depending on how you use your second residential property, you could have a significant tax deduction from your real estate. If you hold on to the property, you can enjoy a double tax deduction each year. There is also the benefit of writing of improvements and interest payments from both of your residential properties as well. You can benefit from residential home tax deductions for several years. When you double that benefit for several years, you are talking a significant amount of tax savings.

Income

A second residential property can pay for itself, and then become a profit center for you if you hold on to it. You can rent the property out and then use the rent to pay the mortgage and do any repairs. You can create an apartment in the attic or garage and then double your income potential. Once the property is completely paid off, it becomes a regular source of profit for you until you determine that do not want to, or are no longer able, to care for it. At that point you can sell the property to make a huge profit from the value appreciation you experienced while owning the property.

Two Mortgages

If you cannot find a buyer, or a renter, in a relatively quick period of time then you will be stuck with two sets of property payments. You will have 2 mortgages, 2 sets of taxes to play and 2 sets of civic charges such as trash pick-up charges as well. It can be a drain on your finances and it could drive you to bankruptcy. At that point, the second residential property you purchased to make a profit could become the source of your financial ruin. You will also have two sets of utility bills to pay and you will want to keep your second set of utilities going if you want to rent or sell the home.

Maintenance

When you own two residential properties, you become responsible for taking care of both of them. Activities such as mowing the lawns, maintaining the buildings and doing snow removal for both properties are required by your local laws. If you ignore these laws, you can start racking up fines and could wind up in jail. If someone gets hurt while walking across your second residential property lawn, even if you are not living there, you could be liable. Your insurance for your second residential property will go up, and that can affect your primary residence as well.