You may believe that being a landlord is nothing more than a means to extra income. But being a landlord is much more; entailing work, time and worry. Even if your rental property is in tiptop shape and all your tenants pay promptly and take care of your property, you will still face expenses and time-consuming duties each month. You should know that up front. Simply put, landlording can be lucrative and rewarding,but it will always require effort and time.
Now let us take a look at some of the factors you should consider before you jump into renting your property.
Landlords of All Sorts You may be considering renting out the second floor of your two-flat, or buying a 10-unit apartment building in another state. No matter what the size and scope of your plans for buying and renting property, the rules, guidelines and advice in this book will still apply—though you may have to consider how certain factors fit your landlording situation.
Everyone who picks up this book is interested in landlording so that they can make money. There is really no other reason or benefit for becoming a landlord. You can make money on real estate appreciation, on rental income or on both. Generally speaking, your goal is to:
a. take in more money in rent than you spend on the mortgage and your expenses and/or
b. let your tenants’ rent pay for a property’s expenses so you can reap the appreciation.
Buying the right real estate is a secure investment that can provide a solid income and pave the way to more property purchases. The advice in this book should help you choose the best property for your goals, set your rents correctly and earn money. However, before we get into the details, consider these advantages and disadvantages:
• Investing in the right rental property can be the wisest thing to do with your money. You might say, “It is not the rental—it is the real estate.” Choose your property (or properties) wisely and you will be financially secure for life.
• You can take advantage of tax write-offs and deductions for your rental properties, which can add up to huge savings on taxes.
• You can use the equity you build in a rental property to invest in more property, and thus expand your “landlording empire” without spending all of the money in your bank account.
• As long as you have paying tenants in all your rental units, landlording ensures a steady income.
• The initial buying or converting of rental property is a huge investment for most people. Unless you have a spare condo or house ready to rent, you are going to spend a lot of your money on real estate.
• Maintaining that property—and your new landlording business—will also require some money. You will have expenses for decorating, repairs and maintenance; possibly for hired help such as an accountant, lawyer or maintenance help; and general business expenses.
• Over time, you may find that your property value is not increasing as much as you thought it would. It is crucial that you continually look at the “big picture” value of your property, along with your current and potential rental income, to make sure you are coming out ahead.
“Being a landlord is financially rewarding, but it can be fairly expensive.”
–Tamera Brake, Independent Landlord, Elkhart, Indiana
In a perfect world, you will end up with rental properties that are in great condition and never require repairs, tenants who are happy and complaint-free and never leave. Even in these ideal conditions, you will still need to devote some time every month to the following tasks:
Accounting - Make sure rents are paid and deposited, and taxes and insurance are up-to-date.
Maintenance Is the grass mowed or the sidewalks shoveled? Gutters or furnace filters cleaned? Smoke and carbon monoxide batteries working?
Communications - Is everything OK with your tenants? Check for problems with the property or with neighbors, along with any other nuisances. Also stay informed on issues with the neighborhood, rents/expenses in your area and other landlord issues.
And if conditions are not ideal, plan on spending a great deal of time advertising and showing the property, screening tenants, keeping your rental units in good condition and handling repair issues. Depending on the size and condition of your property, and the turnover rate of your tenants, landlording could become your full-time job. That is OK—as long as your salary for that job is acceptable!
“ You have to take a leap of faith letting renters move into your property. You are giving people a home, and it is their home. You have to go with that.”
–Paul Lorenz, Independent Landlord, Paducah, Kentucky