Landlords sure get a bad rap these days. Many tenants accuse them of being ruthless, money-hungry “slumlords”. The truth is there are probably plenty of those, but there are also plenty of great landlords who are simply looking to make some extra revenue. Making a foray into the world of real estate isn’t easy, and becoming a great landlord can be a difficult task. Consider the following facets of a career in landlord-ing and decide if this is the right move for you.
Do You Have Enough Cash for Bumps in the Road?
You don’t necessarily have to a great deal of personal capital to become a landlord, but you do need to have the right financing in place. If your renters are paying their rent every month, things are great, but what happens when they can’t make it for one month? Two months? What if they become squatters? This is an all-too-common occurrence, and if this occurs, you’d likely have to hire a real estate attorney.
As this CBS News article notes, this is called a “non-performing asset”. In other words, you still have to pay the mortgage, taxes, insurance, repairs, and other costs despite the fact that nothing is coming in. As the article indicates, you should ideally have at least six months of housing expenses (plus attorney fees) saved for the worst-case scenario.
On top of the squatters situation, there will be inevitable maintenance issues that go along with being a landlord. You want to have cash available for things like that so you don’t get yourself into credit card debt. Again, life can be going well for months and months but then all of a sudden you owe 5,000 to fix a major issue like a roof that needs repair.
If you don’t have a lump sum of cash to use, you’ll need to pursue other financing methods. Traditional loans through banks are harder to come by after the housing bubble burst back in 2008. Many landlords and property owners are now looking towards unconventional funding options.
Remember those repairs we just mentioned? Yeah, you’ll be the one taking those calls and likely lining up the fixes. If you’re not in the same city as the property you’re renting, you have to hire a property manager to be on call. If you’re the type who lets your voicemails go for days, this likely isn’t a good match. On the other hand, if you’re handy and can take on a lot of the repairs by yourself, this could be a dream gig.
Are You Detail Oriented?
Being a landlord isn’t finding a nice couple and renting your property to them on a hunch. A lot of hard work has to go into the vetting process or you could fall victim to the nightmare tenants we already discussed. You need to run a background and credit check, call past landlords, have them fill out an application, verify employment and ability to pay, and interview your applicant(s). Whew! It’s not easy but you’ll be glad you did it when it comes time for them to pay the deposit and rent, etc. If this sounds like too much work, then perhaps this isn’t the gig—or side gig—for you.
Are You Okay with Virtual Strangers Living In Your Property?
This sounds like a no-brainer but if you’ve just poured a bunch of money into decorating a place and making sure it’s up to code, it might ultimately become too painful to think about other people living in it. If it’s a true rental property in that it’s nicely but inexpensively decorated, you’re more likely to be okay with the idea of tenants living there. People can do some serious damage and if you’re not up to the task of trying to recoup that money with the initial deposit and possibly more, being a landlord might not be for you.
Are You Committed?
If you get into renting out a property or two but run at the first sign of trouble, you’re more likely to lose money. If you stick it out through some possibly bad renters and a rocky market, you’re more likely to make a profit. Do you have what it takes to commit? It might be time for some soul searching.
Being a landlord isn’t for everyone but, with some dedication and a lot of planning, it can be a very rewarding journey.