People may pursue being a landlord as a means to ensure a steady source of income. Though that is a reality for most landlords, there are other benefits to owning rental properties, including potential tax deductions and long-term security.
Investing in residential rental property can be a lucrative way to increase wealth, but it’s also a lot of work. It’s important that prospective landlords do not overlook the risk involved in such a pursuit, as tenants are not always reliable. As with any investment, it’s best for people to do their homework and weigh all of the information accordingly before moving forward.
What is a landlord?
Before becoming a landlord, it’s best to get a broad picture of the role. A landlord is a private individual or company who owns a property. In turn, that landlord rents out the property to people at a profit. It is believed the concept of “land lording” began in the early 1800s due to overcrowding in the United States. Landlords bought property to let out to people in need of shelter, and realized they could make money by renting homes and apartments to others.
How much do landlords make?
Unlike a full-time job with a set salary, it is not possible to nail down one figure for income on a rental. That’s because many variables go into the equation. Real estate professionals notes that rental property income varies based on the property’s location, whether the landlord chooses to live on the property, and whether a person is a full-time or part-time landlord, to name a few factors. One thing that landlords have going for them right now is property appreciation. According to Forbes, housing prices have increased 4.5% per year since 1975.
What are the costs of being a landlord?
Potential landlords should understand that buying rental property requires an initial, and potentially sizable, financial investment. It’s important to know some of the potential costs involved.
Cost to buy a property
Landlord insurance
Advertising the property
Attorney fees
Tenant background check fees
Maintenance and repair needs
Loss of income if tenants fail to pay
Loss of income between tenants
Cost involved in hiring a property manager
Learn the rental laws
Landlords should know federal laws and local rules and regulations that pertain to rental properties. Most laws involve making “reasonable accommodations in rules, policies and practices or services if it is necessary should a tenant become disabled.” There are building codes specific to rentals, and it’s wise to know what is involved in squatters’ rights. A skilled real estate attorney can help landlords navigate legal issues.
Keeping Accurate Records
Record keeping is vital for any good landlord. If a person believes that this is beyond the scope of his or her skill set, hiring a bookkeeper or accountant can be a wise investment. In addition, keep track of tenant background checks and credit checks. Receipts and records are essential.
Becoming a landlord has its pros and cons. However, it can be a worthy endeavor for those with the time, money and work ethic. (MC)