Many people dream that becoming a landlord is a ticket to enjoying easy, effortless income stream…until they inherit a house and decide to rent it out for the first time. The truth is becoming a landlord is a big responsibility. And some landlords ultimately lose money on the deal. It’s definitely not for everyone.
Knowing what to expect is the key to making good decisions about whether you should take the plunge…or explore other options.
Here’s some things to keep in mind:
You have to fix up the house every time a tenant moves out.
In the industry this is known as “turnover.” It involves the process of cleaning and repainting the home. Sometimes you’ll may have to replace the carpets or re-glaze the tub. And all of this assumes the tenants have left only a reasonable level of wear and tear.
You’ll have to do this once a year, on average. Sometimes tenants will stay for years, and request only a minor carpet cleaning or touch-up when it’s time to sign the renewal. Sometimes tenants will break their lease, leaving you to perform turnover duties once every six months, or even once every four months.
Be prepared to pay the house’s expenses whenever the home is vacant.
Finding good tenants is one of the biggest challenges landlords face. Though you might get a lot of answers to your ads, they won’t necessarily come from solid, stable people with clean criminal records and reliable work histories.
It’s not uncommon for a unit to sit vacant for 1-3 months. Whenever the unit is vacant, you have to cover the expenses the rent usually covers.
Be prepared to pay the house’s expenses when tenants don’t pay you.
On paper, the expenses are the same, but this situation is even more frustrating. In addition, you might have to pay legal fees just to get bad tenants evicted. The home won’t be making any income while your broke tenants continue to sit there. And some will play on your heart strings, begging you to give them more time…which is why CBS News suggests that becoming a landlord is a bad move for anyone with a particularly soft heart.
Some tenants are downright insane.
Double and triple check every fact reported on the rental application. Many tenants lie. And some will trash your home. Tenants have smashed up rentals, ripped out all the appliances, built meth labs and brought in 16 of their relatives to cram in every corner. Eventually, you’ll have to repair the damage they do.
You can wind up in big trouble if you don’t know the law.
Landlord-tenant law can be finicky. The moment you become a landlord you take on a responsibility to provide your tenants with a safe living space. The definition of “safe” varies from state to state. You also have to abide by state laws when it comes to delivering legal notices, conducting inspections, and more.
Fail to follow the law and you could get sued. Your tenants could also become near-permanent guests in your property. You’ll want to retain a real estate lawyer at the very least.
You will need an accountant.
Tax laws governing property ownership and rent collection can be complex. And you’ll want to take advantage of every deduction in order to avoid sending most of your profits to the government.
It’s a long term strategy.
Landlords who are using tenants to pay off mortgages tend to do little more than break even. Those who come out ahead tend to be the ones who own their properties for 30 years or more, allowing the rent to pay off the mortgage. They maintain cushions the entire time, and eventually enjoy a steady stream of income to supplement their retirement. Many of these landlords become committed to the business and buy multiple properties.
But if you’re not in it for the long haul, a few bad tenants could ensure you actually lose money.
You have an alternative.
Not sure that becoming a landlord is right for you? You can always sell a property you can’t live in yourself. We’ll buy it as-is, offer you cash, and will give you one of the most headache-free selling processes you’ll ever experience. Interested in learning more? Got questions? Call us today. We’ll be happy to address all of your concerns.