Here Are the Pros and Cons to Consider at Becoming a Landlord
When you think of a landlord, what comes to mind? A woman or man with a lot of disposable income who also has a lot of claim to the land of their city? A person who has little to worry about other than collecting checks?
The truth is far from it. While being a landlord has many benefits, you also have to be prepared to do the work and take the risks associated with such a career. If you are considering getting into the real estate business and becoming a landlord, here are a few pros and cons you need to take into account.
- Pro: Real estate is finite, and will always be something that people want to purchase.
The world is only so big. Real estate is finite, meaning that until humankind lands and colonizes another planet, we’re stuck with what we have. This is a good thing for landlords, because it means that the real estate they buy will always have value. The longer you own a property, hold onto it, collect rent on it, and pay off the mortgage, the more profits you stand a chance to make. When it comes time to sell and buy a different property, or simply sell, you know there will always be a buyer–regardless of how long it takes to find them.
- Con: Real estate is something that people want to purchase–therefore, renting markets are not always profitable.
In a buyer’s market, it usually means that mortgage interest rates are low and it is easier to purchase real estate as a homeowner. This is good for landlords as well, because if your mortgage is low, your rent will always make a higher profit for you than if you had gotten a loan with a higher interest rate. However, with many people purchasing homes rather than renting them, your properties run the risk of being vacant longer, which is less profit for you. You may have an idea of the rent you would charge for a property, but in reality, rents fluctuate. A property you charge $1,000 for rent one year may only be marketable for $750 the next. A landlord’s income is rarely stable.
- Pro: Good, honest, and hardworking landlords stand to make thousands and even millions after years in the business.
Real estate can be an addicting business. The potential for making money is as high as the sky if one is willing to put the work into it. Buying one property is a start, but a few years later, you may want to buy another–and another. Landlords with good and honest business practices usually work by upgrading–that is, starting with a property that is easy to manage and has a low profit, and moving onward to bigger properties and bigger profits. Look around at the buildings around you while in your town. Shopping centers, big box retail stores, large condominium complexes, and large homes are all properties that have a high chance of being owned by a landlord who started out small.
- Con: Being a landlord takes a huge amount of investment in time and money both at the start and throughout your career.
By the very concept of becoming a landlord comes the fact that you must actually own a property that you are able to rent out. In order to make this as a career, you literally must spend thousands of dollars, unlike most career choices available. Buying a condominium is usually the easiest start for landlords, but it is a low profit. Even in this case, you still must take out a mortgage on the property, pay this mortgage while spending potentially thousands more fixing up the property, and then take the time to advertise the property for rent. All of this with no profit at all. Once you rent it out, prepare to be relatively unimpressed. Keeping in mind your mortgage, property taxes, fees, insurance, and utilities, the rent you make in profit will be very little. A $500 condominium would make a landlord, on average, about $100 to $175 per month. Your rent checks are not purely profit, nor are they even mostly profit in many cases.
- Pro: If you are a fair and honest landlord, tenants may like you and your property enough to stay for years with little problems.
There are many hardworking people out there who simply aren’t interested in buying a home, and they rent instead. If your lease is fair, your property relatively problem-free, and your rent stays in line with the average rent in your area, your tenant will have very little reason to ever leave, other than her or his own major life changes. Many tenants also would rather figure out how to repair small things on their own than have to call you and set up appointments, meaning that you aren’t bothered often and you continue making a profit each month. In most cases, people don’t tend to want to move around from place to place, and that stays the same for many tenants. Unless you give them a reason to leave, many will stay, paying you every month to continue living in your property.
- Con: Regardless of your work ethic, you will have tenants that give you problems, and you won’t be able to see it coming.
Tenants come in all shapes, sizes, and walks of life, and it is illegal as a landlord to discriminate based on outward appearances. Property showings are a good way to both show a potential tenant your property to see if they are interested, and a good way to feel out their personality and work ethic. Are they employed? Do they sound responsible? When you call their references, are they described as good people who pay on time? Even if they meet all of the above criteria, a landlord is never safe from a problem tenant. Some tenants stop paying rent altogether, and you must take them to eviction court just to remove them from your property so you can try to get it rented again, all the while making a negative income on the property in question. Some tenants may pay, but will often be late–and they may also be the type that you have to call often to ensure they include the late fees. In other cases, good tenants may simply come across hardships, and it is up to you whether to compromise the rent to continue your business relationship, or to ask them to leave and take a chance with another tenant.
- Pro: If your property is rented, you are making income every month without having to report somewhere from 9:00 to 5:00.
Considering that your property is rented and your tenant is having no problems and giving you no problems, you can sit back, relax, and make money. Every month, you will receive a rent check, and after paying your bills, you have a profit left over that you can do with what you wish.
- Con: When your tenant moves out or has a problem, it’s crunch time.
All those months of being able to enjoy the profits are able to exist because of the hard work you put into the property when it’s not going so hot. If your tenant calls you and has a problem, you have to drop everything and get on it. You may or may not know how to fix it yourself, and you may or may not know someone who does. Either way, you have to fix the issue and as soon as possible. Your tenant’s happiness with your due diligence can mean the difference between them handing you their 30 day notice or not. When your tenant moves out, expect to be working more hours at your property than most people do at regular jobs in a week fixing it up and making sure things run smoothly. Time is of the essence, because if you don’t work quickly, that can mean a month’s worth of rent is lost–even though you still have to pay your bills.
Being a landlord can be one of the most rewarding careers out there, but it is also arguably the most expensive to get into with both time and money. Expect headaches and losses to come along with your profits. Ultimately, however, it is each landlord’s willpower and work ethic to be successful at what they do that determines how rewarding the career can be.