- 9 Realistic Pros and Cons of Becoming a Landlord
9 Realistic Pros and Cons of Becoming a Landlord
By now, you’ve likely heard that real estate is possibly one of the smartest investments you can make. It’s a common interpretation that virtually everyone should buy a rental property and then let the income start to roll in.
But before you start thinking about buying property just to rent it out, you may want to seriously consider if you have what takes to become a landlord.
You may know the advantages of owning a rental property, but how well do you understand the downsides? Let’s take a closer look.
Pros of Being a Landlord
1. Even If You’re Spending, You’re Still Saving
As long as you’re considering smart property locations (more on that later), the savings potential with the property you own versus having to rent is unparalleled.
Unless you’ve made a mistake somewhere, you’ll more than earn back the cost of the mortgage, and the value of your property is likely only appreciating over time.
2. The Tax Benefits Look Good
Sure, the amount you can charge for rent versus the amount you’ll pay on your mortgage will net you a profit, but that isn’t all. When tax season rolls around, you’ll discover there are plenty of benefits to owning your own home; even if you don’t live in it.
3. Distance Is Just a Number
When it comes to being a landlord, you don’t always have to be in direct proximity to the property you own.
You may not want several thousand miles between you and the house(s) you own, but there’s really no limit on where you can put down roots with rental properties.
Even if you decide to move eventually, you don’t have to sell your rental homes if you don’t want to.
4. Money, Money, Money
Having all of that extra income lying around isn’t nearly as important as all of the things you’ll be able to do with it. From planning for your retirement to finding other investment opportunities, being a landlord can literally change your life.
Understanding Rental Income
Yes, there are financial benefits to getting into the rental property game. Still, it’s important to understand that there’s more to buying a house and renting it out than the difference between your mortgage and the price of rent.
Ultimately, your rental income boils down to PITI: principle, interest, taxes, and insurance. Each of these four elements is critical to turning a property into a rental unit.
How much you pay for the house, how much money you have to put down, the interest rate you secure, and the insurance costs will all help determine how much money you actually have to take home at the end of the day.
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Cons of Being a Landlord
5. No Days Off
As a landlord, you may discover that there’s no such thing as a “day off.” Unless you hire someone to manage the day-to-day operations for you, your tenants can come calling at any time of day (or night) with issues that require your immediate attention.
6. You May Have Underestimated the Time Commitment
When you take up the mantle of landlord, you become responsible for the living conditions of your tenants. Remodeling the home, repairing things that are broken, even tending to the house between tenants is all up to you.
7. The Startup Costs Can Be High
The first thing you’ll need before you can become a landlord is a physical property you can rent out. While rental property has the opportunity to make you money in the long run, you’ll have two major costs right out of the gate that can be exceedingly expensive: buying the property and renovating it for your tenants.
You may find that purchasing an older home will net you more money up front, but the cost for upkeep on older homes can also be high.
8. Unexpected Costs Can Eat into Your Profit
When you buy a house for yourself, it’s estimated that you’ll spend an extra 10 percent over the price of the mortgage on upkeep and repairs.
The same is true for your rental properties, and if you aren’t careful, the cost of upkeep can leave your margins looking a little worse for the wear.
9. Staying Up to Date with Legal Obligations
In a perfect world, all of your tenants will be wonderful to work with and you’ll never have any unexpected issues to worry about.
In the real world, there’s a multitude of legal requirements for being a landlord, and you need to be keenly aware of your responsibilities when dealing with rental properties.
The laws aren’t just nuanced in terms of how you deal with people renting their homes from you, but the local legislation in your city and state can change over time. A successful landlord has to have the legal wherewithal to navigate these changes and stay updated on new legislation.
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Dealing With Rental Properties
Before you start thinking about how to rent out your house, it’s important to recognize that being a landlord isn’t for everyone.
Yes, the rental income can be nice, but there’s more to renting out property than collecting a check every month. Before you embark on a new investment opportunity, consider the pros and cons of being a landlord to decide if you’re up to the task.