Should You Become a Landlord?
There is a reason people call them “slumlords”. The harsh reality is there is a not only a negative impression of landlords among renters but, conversely, many landlords have trouble choosing renters who are reliable and trustworthy. But the truth is you’ve set your sights on traveling the world, and becoming a landlord can be lucrative if you do it well. Should you become a landlord? If you’ve been asking yourself this, read on, as there quite a few considerations to factor in when making this important decision.
Weigh the Risks in Finding Tenants
If you don’t have the time to vigorously vet your potential tenants, then you should already opt out of becoming a landlord. While the process can be time consuming and a bit labor intensive, the alternative could be a disaster. Combat the stress that could hit you down the road by doing your due diligence now. Unfortunately, landlords make a number of mistakes when choosing tenants. From not checking tenants’ credit and not checking on the property to not charging late fees and not collecting deposits up front, the effort you put into choosing tenants is a necessary evil in becoming a landlord. Don’t have the time? Then wait on this decision.
Assess the Market
As with anything, you want to check on the return on investment you’re going to get by renting out your property. Do some research on sites like Zillow and Craigslist to find out what rentals are going for right now. You’ll then need to do some calculations and figure out whether your mortgage, taxes, and insurance are covered by this. Ideally, you’ll want at least a little extra beyond this, too, as that’s kind of the whole point, isn’t it? Factor in what you’ll net along with the tax benefits versus what you’ll need to pay out and the effort/labor you’ll need to put forth. If the numbers don’t add up, this might not be the time to become a landlord.
Think About the Time Commitment
Being a fairly hands-off landlord is one thing but, as we mentioned above, not visiting your rental property at all is downright dangerous. You should make sure you have the time to occasionally check on your property and make sure your renters are being responsible. You’ll also need to factor in time for repairs and/or figure out if you have enough money to outsource these to a company or a handyman. And one other tip—if you consistently check on your property and you’re impressed with how these renters are taking care of it, you should really reward them. Ideal renters are few and far between! Try to keep the rent at a fair price, be thoughtful with things like anniversary or holiday gifts, and allow them certain freedoms (choosing paint colors is a renter’s fave!).
Know the Ins and Outs of the Law
The laws surrounding being a landlord vary from state to state but, as this article from U.S. News notes, the commonality seems to be that the landlord-tenants laws tend to heavily favor the tenant. As real estate broker and owner of North Bloomfield Properties notes in the article, “If you—almost literally—forget to dot an ‘I’ you can be eviscerated in court.” Ouch. You can find plenty of information regarding these laws by simply hopping online, so make sure to learn what you can before making the leap. If you really want to safeguard against the possibility of being sued over a loophole, you might consider hiring a third party company to manage the property.
Familiarize Yourself With Your Responsibilities
You might think that being a landlord simply means the occasional repair and enforcing rent checks are paid on time. In reality, it’s much more than that. On top of the due diligence in screening your applicants, you need to make sure your property is up to code, with a solid structure and working systems (such as plumbing and heating). You also need to keep it free of environmental hazards and pests. It’s not much more than that of being a homeowner but, if you own multiple properties, these tasks can be time consuming.
Real estate can be an incredible investment and, as such, so can being a landlord. However, you need to think long and hard about the factors we mentioned before making this big commitment.