Rental property can mean high expenses, low profits

BONDY ON MONEY

July 17, 1994|By SUSAN BONDY | SUSAN BONDY,Creators Syndicate

Q: My husband and I would like to invest in income-producing property. How do we determine the value of a house and the cost of fixing it up?

A: First, consider the potential problems: How will you screen prospective renters' financial and employment records? What will you do if your tenant fails to pay the rent? The legal costs associated with the eviction process can be prohibitive.

Are you willing to monitor the condition of the house? What about the day-to-day maintenance or repairs? What will you do if tenants do not pay their utility bills?

The cost of fixing up the house can only be estimated by a licensed builder, contractor, architect or decorator. You should also know that the 1986 Tax Act removed many tax incentives for owning rental property.

Other financial considerations: Can you charge enough rent to pay for the mortgage, insurance, maintenance and taxes, while building a reserve? Today, you can easily find safe investments yielding 7 percent or more. Unless you can foresee a much higher return on your expenditure, I would discourage you from going ahead with this idea.

Susan Bondy founded her namesake financial services company 1980 to provide financial planning and asset management. She is a frequent guest on "Good Morning America," the "Today Show" and National Public Radio.

She is the author of "How to Make Money Using Other People's Money." Write to Susan in care of The Sun, 501 N. Calvert St., Baltimore, Md. 21278. All letters will be treated confidentially.

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