Most of us have had a landlord at some point, and some of us have dealt with them our entire lives. However, have you ever thought about what it would be like to stand in their shoes? As you grow older and gain more financial independence, the idea of purchasing rental properties may appeal to you. But before you start throwing money around, make sure you understand the truth behind being a landlord.
- Rental Properties Can Produce Passive Income
Everyone wants the ability to make money while they’re doing something else, but the reality is that there are very few opportunities to accrue passive income. However, owning rental properties is one.
It should be noted that there is work involved in owning rental properties, but when you have the right systems in place, it can be predominantly passive. In most cases, though, there is a lot of work on the front end.
- You’ll Need a Property Manager, Otherwise…
It’s almost always a smart idea to hire a property manager. This is especially true if you have multiple properties and work another full-time job.
There are many different reasons for hiring a property manager, but one of the main ones has to do with turnover. “High tenant turnover equals extra expenses and hassles,” Green Residential, a Houston-based property management company, points out. “When a tenant leaves, you are required to clean the space, fix existing problems, market the property, spend time screening new clients, and perform all the other tasks that are required to secure another tenant.” Property management companies keep turnover to a minimum, which lets you maximize revenue.
- You Make Money When You Purchase
There’s a rule of thumb in real estate investing that says you make your money when you purchase. In other words, you make money by identifying properties that fit your specific price range and that will allow you to produce positive cash flow in the future. If you overpay on the front end, you’ll end up barely breaking even from month-to-month. Furthermore, you probably won’t be able to turn much of a profit when you eventually sell the property. Always do your due diligence and don’t let emotions drive your decisions.
- It’s Not a Get Rich Quick Scheme
“Being a landlord is not just sitting around collecting a big wad of cash each month,” landlord Laura Agadoni explains. “You’ll need to spend some money to ready the property for tenants, buy landlord insurance, and pay property taxes. If you’re taking out a mortgage, be prepared to fork over at least a 20% down payment.”
Landlording is not ideal if you’re living paycheck to paycheck. You need to make sure you’re able to pay your own rent/mortgage, and have a substantial amount of savings that can be used to pay for emergency expenses that arise.
- It’s a Great Way to Make Money
Is landlording easy or effortless? Certainly not. But is it a great way to make money? Absolutely. If you’re in a financial situation where you have the flexibility to invest in a rental property, then you should definitely consider the possibility. If you find the right property and the numbers work out, you can generate a few thousand dollars per year and increase the stability of your portfolio.
Weigh the Pros and Cons
As you can see, there are a number of distinct benefits that come from owning rental properties and being a landlord. However, make sure you’re considering all sides of the equation. Being a landlord isn’t for everyone and it’s important that you think through everything before diving in.