Should You Become a Landlord?

When you’re looking for places to invest your cash, buying a rental property might seem like an ideal investment. Money that comes in from rent payments is called passive income according to Investopedia because you aren’t as involved as you would be in a traditional job. Before you take the leap, consider what you’re getting yourself into.

It’s not always passive

Being a landlord might be a way to earn money outside of a full-time job, but that doesn’t mean that your personal time is sacred. Erin Eberlin of The Balance Small Business points out that issues with your property could mean late nights or long weekends if an emergency pops up. Even if you aren’t fixing a burst pipe or storm damage on your own, you are the one that has to arrange a repairman. If you don’t want to be responsible for the little things, Forbes contributor Harlan Landes points out that you can hire a property management firm to take care of it. It will make managing your property much smoother, but paying them will also cut into the money you pull in from your property.

Know your market

Before you become a landlord, do the research into where you plan to buy. Holly Johnson of Lifehacker reports that about 35 percent of households nationwide rent their dwelling as of 2012, or more than 43 million families. The costs associated with buying homes, like sizeable down payments and creditworthiness, keep many families renting instead of buying. This creates opportunities if you can afford to buy property. While that’s a fair amount of people looking for great places to lease, the market might be different in your area. Before you put down the cash to start your career as a landlord, do the research to make sure that there are enough people in your area looking to rent.

Have realistic earning projections

If you’re entering into a highly competitive rental market, you might need to keep rent low to find tenants. As a landlord, you need the rent to cover your mortgage, property taxes, repairs and other costs. If the property is expensive (driving up your mortgage payments) or you can’t charge higher rent to make a larger profit, becoming a landlord might not earn you as much money as you think.

Landes points out it’s possible that rates in your area could keep your profits down in the $200-$400 range per month, or about $4,800 a year. That’s hardly enough to let you quit your full-time job. You could own more properties, which could bring your costs down if you buy supplies in bulk or qualify you for industry discounts, but that would require a much bigger starting investment.

Study the laws

When you think you’re financially and mentally ready to take the leap and become a landlord, it’s time to study. There are several laws and regulations you need to be familiar with in your position of power. Erin Eberlin’s basic list on The Balance Small Business starts with the federal Fair Housing Laws that prevent discrimination. From there, you have you look up state and local laws pertaining to safety and health to make sure your property doesn’t make you a slumlord. Finally, before you speak to future renters, look up what you can and can’t ask in an interview, as well as what rights you have if they need to be evicted.

Being a landlord can be a rewarding way to get invested in real estate. Before you sign any paperwork, consider talking to a financial advisor.

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