Being a landlord is a great way to earn more income on the side. It also comes with its own set of challenges, from problem tenants to maintenance costs. Below are the pros and cons of being a landlord so you can decide if it’s the right job for you.
One of the biggest appeals of becoming a landlord is the extra income. As long as you have reliable tenants in your property, you can count on a steady cash flow each month. The monthly payment should be enough to cover the mortgage of the property so you can hold on to the property as it appreciates in value.
Minimal Time Commitment
Many landlords hold full-time jobs and own property on the side. The amount of commitment is variable depending on your property and the tenants, but you can hire a property manager to take on the responsibilities during business hours if you’re too busy. For just a portion of your rental income, property managers will look over the day-to-day operations to make sure your property stays in good shape and the tenants stay happy.
All rental income is taxable, but there are a few tax deductions you can take advantage of to offset the cost. Being a landlord is like owning your own business, so some of the expenses required to uphold the business are tax deductible, including:
- Buildings and contents insurance
- Depreciation during wear and tear
- Mortgage interest
- Replacing water pipes and disposal duct
- Replacing damaged furniture
Owning real estate is a long-term investment that can appreciate in value over time. You can put the money toward retirement, your child’s education, your pension, or for emergencies. If your lifestyle changes, you can also use the property yourself in times of financial downturn, as long as it agrees with the contracts signed by the tenants.
As a landlord, you are the owner of your own business. This allows you the freedom to set your own terms, rules, and cost of rent. As long as it’s within the law and your contract, you have the freedom to do as you please.
Buying real estate is just the first step in becoming a landlord. The initial cost of ownership can be expensive, but so can renovations. Before you purchase a property, estimate how much you’re willing to invest in repairs. Older properties may be cheaper, but they may require more renovations to keep it up to date. Newer properties are typically more expensive but they’ll have newer amenities already built in. When you become a landlord, you’re required by law to install certain features for the security of your tenants. A private hard money lender can help offset the costs while you make repairs.
Along with initial renovations, you’ll have to make ongoing repairs to your property. Roof leaks, bad plumbing, fires, water damage, and safety code requirements are just a few of the costs you’ll have to keep in mind while you own a rental. These problems can take a bite out of your rental check, so contribute some of the money to an emergency fund for unexpected repairs.
Tenants can be a huge headache for landlords. If tenants don’t pay their rent on time or at all, you can lose a chunk of your income. You also run the risk of property damage, noise complaints, and other rule violations. If they violate your contract, you may have to get a collection agency and lawyers involved in order to recover your income. Landlord seminars equip you with the skills to handle difficult situations with tenants.
You must stay up to date on the latest property legislation and laws pertaining to landlords. Stay informed on any changes to the federal, state, and local housing laws to make sure you’re not exposing yourself to fines and lawsuits.
Being a landlord isn’t easy, but it can be a rewarding job. Consider the pros and cons to determine if it’s right for you.