Many people are attracted to the idea of being a landlord because it’s a way of turning liabilities into assets. But what exactly does that mean? Well, if you think about it, a house or an apartment is a liability when you have to pay for things like maintenance, repairs, taxes, landscaping, utilities and mortgage interest. It’s something that sucks up all your money and doesn’t yield anything in return.
But houses and apartments can also be assets. How? Instead of just sitting there doing nothing, they can earn an income by being rented out. Often this rental income exceeds the cost of upkeep and can generate positive cash flow.
Becoming a landlord is a viable job for hundreds of thousands of people. After all, somebody needs to sell rented properties to individuals who don’t want to, or can’t, afford to buy their own homes.
Succeeding in the rental industry isn’t guaranteed for everybody. It requires a particular set of skills that aren’t as easy to master as you might be led to think. To make a decent living as a landlord, you’ll need to be bringing in around $4,000 a month. Given all of the expenses, you’ll have to pay on your properties, that means you’re potentially looking at very many rental agreements. The more agreements you have to keep track of, the harder your job will be and the more people you’ll have to please.
Ask yourself these questions before becoming a landlord.
Do You Like DIY?
One of the first things you’ll discover when you become a landlord is just how often things go wrong with a house. A toilet handle has broken off, the oven won’t light, the boiler has stopped working, the shower’s too cold, there’s no key for the balcony door, the blinds don’t close etcetera. All of these problems will cost you a fortune to fix if you go to a local handyman to do the work for you. This is why so many landlords invest their own time in the upkeep of their properties. Outside contractors may prove too expensive and could eat into your monthly income.
How Much Work Are You Willing To Do?
Usually, the first few apartments you buy increase your income significantly, paving the way to millionaire status. But you soon find as the more properties you add, the more of your time is spent sorting out problems. Once you’ve grown to around 20 properties, problems can quickly eat up 50 percent of your time. This makes it harder to win new business, buy new properties and take on new people. Getting to a high income as a property owner might seem easy if programs like HGTV are to be believed. But there comes a point in most landlord’s lives when they just get too big to manage all their investments.
That’s not to say that making money as a landlord is impossible. There are dozens of property owners in every town and city in the country driving around in luxury Range Rovers having made a fortune. But landlords need to know that it’s a lot of sweat and toil to get there. Only landlords willing to put in the hours will get the lifestyle that they expect.
Can You Charge Enough Rent To Cover Your Expenses?
In some locations, especially in student areas, monthly rental prices can be highly competitive. That’s why it’s a good idea when you see an apartment for sale to ask whether you’ll get sufficient rental income to make it worth your while.
Suppose for instance you have to take out a mortgage to pay for a new property. If the other landlords in the area don’t have mortgages on their properties, then they don’t have to pay mortgage interest. And if they don’t have to pay mortgage interest, then they can afford to charge lower rents.
It’s easy to see how this works using the numbers. If your monthly costs on a property are $800, thanks to interest, mortgage payments, expenses and so on, and you can only charge $1000 in rent, then you’ll only take home $200 a month. To take home $4,000 a month, you’ll have to rent out twenty similar properties. You might be able to take out separate mortgages on all those properties, but it’s hard to do and will involve a lot of trips to the bank.
But in other locations, you might be a lot luckier. You could have a mortgage repayment of just $350 a month, but still be able to charge $1,000 rent. That would net you $650 a month, meaning you’d only need around six properties to get the income you want.
Do You Like People?
Of all the questions landlords need to ask themselves, this is probably the most important. Not all people renting from you will be model tenants. Some won’t pay on time and others will be downright hostile. Landlords need to be prepared for the fact that disputes with tenants are commonplace.
Most landlords get around this problem to some extent by screening people. They hire firms to carry out credit and background checks, and they personally interview their tenants to make sure that they are reasonable people, able to hold down a steady job.
Dealing with strangers is not for everybody, though. If you’re the type of person who prefers the close company of people you know, then becoming a landlord might not be the job for you.
Do You Have Enough Cash And Savings?
You don’t have to be rich to become a landlord, but it certainly helps. The main benefit is the fact that you can buy houses outright and don’t have to pay any interest. This means that you can offer competitive rates to tenants while making sizable profits. Often this makes the difference between a rental agency that makes it and one that doesn’t.
Using other people’s money to buy property and to let it out can work, but it’s usually only effective where property values are rising. Currently, it’s just a fact that the people who own properties are also the ones renting them out, making it hard for first-time landlords to compete.
How Do You Like 24-Hour Responsibility?
Some landlords with a lot of cash behind them can afford to pay for a team of people and an office to take inquiries about rental properties. But the majority of new starters can’t, and that’s when trouble can begin. Most landlords work through an agency which deals with all the day-to-day mundane stuff, like broken boilers and leaking pipes. But landlords who are just starting out usually don’t have the money to pay somebody to sit there and answer the phone if something goes wrong. This means that they have to do it themselves, which means that they get calls at 2 am.
If that’s the sort of thing that you love, then being a landlord could be just the job for you. But if you don’t like running around like you’ve got a six-month-old baby, then it might be a vocation you want to skip.
This sort of thing is especially problematic for landlords who also have a day job. You desperately need to sleep so that you can perform at work. But you also need to fix problems for your tenants, just in case they give you a bad review or decide to move elsewhere. As discussed, it’s likely that you’ll end up rushing around like a headless chicken after work, sorting out problems until it’s time to go to bed. And even then, you might not get any sleep.