Many people dream of being a landlord. While the concept and idea of making a living, or adding passive income from rental properties is intriguing, there are a lot of things to consider before jumping in and making the commitment to becoming a landlord.
The biggest advantage of being a landlord is that it will allow you to build your assets. Often the home can bring more in rental income than what it costs you to pay the mortgage. For those who are debt free on the house, you will have a significant amount coming in each month. If you got in over year head and end up having to sell the house at a loss, there are tax breaks for doing so. Since being a landlord is a business, there are many things that can be done to help with the tax burden.
All is not fun and games being a landlord though. There will always be maintenance costs. Many of them will result in thousands of dollars if not taken care of immediately. For instance, a hot water heat that breaks and floods the basement will need immediate cleanup, and a new water heater must be installed. If not, the landlord is liable to set the tenant up in a hotel until the repairs can be made.
Most insurance companies will charge more to insure a house that is being rented out. The fact is tenants will not take care of the house the same way the owner will. This added risk of damage means higher premiums.
Increased income taxes will come if you are reporting the rent as a source of income. While it is tempting to just collect the money and not worry about the taxes, stiff penalties could be imposed if you get caught.
Repairs will be needed. In your own house it is easy to overlook that hole in the drywall, or the missing plank on the deck. These become liabilities in a rental. Repairs need to be done right away, and if you do not have the time or know-how to do them yourself, you will have to spend money to hire someone.Tenants that don’t pay are sure to come around eventually. While evicting them may seem easy, it is quite the process, and several months’ worth of rental income and legal fees can be lost in the process.
Once the tenant is out, there may be a month, or several months, that the house sits vacant. Every month that goes by hundreds or thousands of dollars are lost and can never be recouped. For a place that is paid off it might not be too bad, but if there is still a mortgage on the property, the landlord suddenly has to pay it out of pocket.
Before getting into the business of being a landlord, you should know the local laws regarding being a landlord. This might mean scheduling time with an attorney, or at least spending a while online researching and reading. When it comes time, always have a lease signed. Regardless of how well you know the person, things can go south in a business relationship. Always make sure to disclose everything about the property. If something does not work right, such as a dishwasher or microwave, inform the tenant and have the disclosure in writing. If not, a lawsuit could happen. Above all else, make sure to maintain a slush fund. When things need repaired, the money should be easily accessible.
There is nothing wrong with being a landlord. In fact, for those who have the time, and are handy around the house, it can be a great source of income. But before jumping into it, make sure you know exactly what you are getting into. Getting out of the landlord business can be a lot harder than getting into it.