There’s good money to be made by investing in real estate, and one of the more popular and traditional means of making a profit with real estate is by renting. With the economy continuing to recover and mortgage interest rates still hovering near historic lows, now may be as good a time as ever to invest in a property and collect rental income.
The question is, are you prepared to become a landlord?
Before you answer that question, there are others that you might want to ask yourself first before making your decision about whether or not being a landlord is something you can handle.
1. Are You Financially Capable of Handling Times of Vacancy (and Therefore No Rent Checks)?
While an investment property is meant to make you money over the long haul, that doesn’t necessarily mean that you won’t experience times when you’re not seeing much money rolling in. After all, you are taking on debt in the form of a mortgage to finance the property. In an ideal situation, you would find the perfect tenant right out of the gates and start collecting a sizeable rent amount immediately to help cover the mortgage and other expenses related to carrying a property.
However, it will be more than likely that your property will remain vacant for at least a couple of months while you screen tenants to find the right one. You’ll also experience vacancies between tenants. If you don’t have a financial cushion to fall back on or are the type to lose sleep over potential debt, perhaps becoming a landlord is not right for you.
2. How Much Time and Effort Can You Invest?
Even just one rental property can take up a lot of time to manage. You’ll need to regularly visit the property in order to perform regular maintenance and collect monthly rent checks. Then there will be other times when your presence or attention will be needed, such as to deal with a clogged drain or repair an ill-functioning appliance.
Of course, handling tenant issues is another unpleasant task to deal with that will also take up your time, whether it’s because the tenant is not up-to-date on their rent payments or is having issues with an obnoxious neighbor. Make sure you’ve got the time to dedicate your responsibilities as a landlord.
3. Are You Comfortable Being Legally Responsible For the Property?
At the end of the day, you are responsible for your property, and all the legalities that come with it. You need to make sure it’s fit for occupancy and meets building codes. Not only that, there are dozens of rules that you need to follow in order to ensure that you remain in compliance with the laws governing landlord-tenant relationships. If you fail to act within your scope of practice, you could land yourself in hot water if a tenant ever decides to take you to court for whatever reason.
For example, did you know that landlords in California must provide a minimum of 24 hours’ notice before entering the property? Or how about the fact you need to give your tenant three days notice to move out before you can file for eviction? There are a number of other regulations that you need to be aware of before you embark on the journey of becoming a landlord in order to avoid getting yourself into trouble.
4. How Will You Collect Rent?
Having a rental property all comes down to that coveted rent check every month, but how exactly will you collect it? Will you be picking it up every month in person? Will you ask the tenant to provide you with 12 post-dated checks to cover the year? Or will you agree on bank or electronic deposits? Whatever you decide, it must be agreed upon between both you and your tenant. Collecting rent is a crucial component of being a landlord, since this is essentially how you will be making your money.
5. How Will You Handle Repairs and Maintenance?
Will you take care of these yourself, or will you hire professionals? If you choose the former, make sure you’ve got the skills and know-how to be able to do a good job without making it worse. If you choose the latter, you’d be well-advised to gather a list of contractors that you know of who you can call to take care of these tasks for you on short notice.
6. Should You Pay a Property Management Company to Handle the Property and Tenants For You?
If the answers to the above questions lean more towards steering clear of being a landlord, you might still consider this endeavor by hiring a property management company to take care of all the hassles on your behalf. A property manager can screen tenants, advertise available units, collect rents, arrange for repairs, handle maintenance, and deal with tenant complaints.
This can take a huge weight off your shoulders and free up the time that would otherwise be spent dealing with your investment property. Of course, property management firms will expect to be paid for their services, but it can be well worth the money if it means liberating you from the obligation of dealing with all of these tasks and issues yourself. Of course, you’ll need to factor in this cost and identify how much it will eat into your profits, although you may be able to deduct such expenses come tax time.
7. Are You Willing To Be in This For the Long Haul?
Typically, investing in real estate and becoming a landlord is more of a long-term endeavor. It’s not something that you necessarily get in and out of over a short period of time, predominantly because of the costs involved. Consider whether or not this is something that you are willing to be a part of over the long term before you jump into the role of landlord.
The Bottom Line
Answer these questions as honestly as you can. Think about these answers very carefully before you decide to become a landlord. Even if you’re not necessarily cut out to be directly involved with the property or tenants, don’t forget that there is always the option to hire a property manager to handle the ins and outs of an investment property on your behalf, as long as the budget permits.