Are You Ready To Be a Landlord? Here’s a List of the Pros and Cons
What is motivating or driving you to consider being a landlord? Most real estate investors are looking for another income stream, a way to offset monthly expenses and increase annual profits. For other investors, the idea comes from a problem selling an existing property. Whatever reason has you thinking about becoming a landlord, you do not want to go into the decision blind. There are several pros and cons you need to consider before making such a significant commitment.
The Advantages of Becoming a Landlord
Understanding why you want to become a landlord might soften the blow of some of the disadvantages to come. There are at least three primary benefits to owning a rental property.
Earning consistent and somewhat passive income is one of the main draws of managing a rental property. However, the benefit is only realized if you do your cost calculations correctly. When you figure things out, a tenant should pay enough rent to cover the mortgage and operating expenses and turn a profit, including equity in the property; this is before factoring in for property appreciation or multi-unit buildings.
2. Tax Advantages
There is no getting around paying taxes on rental income. However, renting out a property does allow for several deductions when filing your taxes. Some of the deductions might include:
- Property repairs
- Building and property maintenance
- Mortgage interest and account processing
3. Time Commitment
Many prospective landlords avoid the investment because they worry about the time commitment. Fortunately, managing a rental property does not take as much time as one might expect. In fact, many real estate investors find they can still have full-time careers in addition to being a landlord, especially if they hire a property manager to help out. Covering the cost of the manager can be factored into the rental price.
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The Challenges of Being a Landlord
While the benefits can sound incredibly enticing, there are several potential cons of being a landlord. For most landlords, four disadvantages immediately spring to mind.
1. Property Value
In an ideal world, you can count on your property to appreciate over time. Unfortunately, the real estate market is unpredictable, meaning you might lose money on your investment. If you invest in a relatively stable market, you can counter some of the volatility in the market, but there is no guarantee. The best way to persevere is by staying informed of the current market and future predictions.
2. Initial Costs
Another drawback to real estate investing and property management is the startup costs. Most investors start by purchasing an investment property. The property likely needs some updating and repairs before it can go on the rental market. Additionally, you will need to invest in advertising to draw applicants to your property. Finally, all states have landlord responsibility laws, especially tenant safety, meaning you might need to spend money to install safety devices and mechanisms. All this needs to happen before a tenant can move in.
3. Variable Maintenance Costs
As the landlord and property owner, you are responsible for the upkeep of the structure. Any plumbing issues, leaks, electrical problems, and safety code violations are your responsibility. The potential cost is why most landlords figure a maintenance fee into the rental income.
4. Problem Tenants
The biggest headache for landlords is problem tenants, who do not pay on time or cause trouble. Always be ready to handle these situations quickly and effectively.
A rental property provides significant opportunities to those who are ready for the responsibility. Are you ready? Leave a comment.