Property management is our business, but we wouldn’t want you getting caught in an investment that doesn’t work for you. Whether the lifestyle isn’t right or you risk not making a profit with the property, we don’t want you to make a bad investment.
Before diving in, consider seven reasons that becoming a landlord should perhaps wait.
It’s true that renting is up. In fact, the U.S. is experiencing the highest number of renters in decades, so many amateur investors want to jump in and turn a profit with their property.
But not every community is renter-centric. Sometimes, the housing market is much more suited for buying or selling, and you’ll have a difficult time finding someone to settle into your property.
Before you consider renting, collect as much data as you can about the real estate market in your community. Compare the number of houses that have sold with the number out for rent.
How many are vacant? How long did it take landlords to fill the property? If you don’t see the profit potential, selling might be the better option.
A lot of people hear about the potential for profits on rental properties, so when it’s time to upgrade to another home, they decide to rent their existing one.
Unfortunately, this rarely works. Homeowners fail to treat renting as a business, and without a business plan and an understanding of profit margins and potential, the enterprise may tank.
A good landlord applies critical thinking skills. He or she will weigh all the costs, including property taxes, insurance, maintenance, repairs, property management, landscaping, and tenant screening.
A smart owner will price the property relative to others in the region and look for ways to make the property more appealing to renters. Most important, the sharp investor has a written business plan that ensures positive cash flow from the investment.
If you’re not ready to start a business and baby it until you see a healthy profit, you’re probably not ready for income property ownership.
Many owners focus primarily on gaining a little extra income from their rental right now. They’re hopeful it will cover their mortgage, property taxes, and insurance, and leave a little for spending.
But the immediate cash in hand doesn’t always spell profit in real estate. Most homeowners spend the first few years of their mortgage paying on interest; they don’t pay anything on the balance owed.
Your tenants might cover the immediate costs with a little extra, but they’re not creating real profits in the long run. Landlords need to consider the bigger picture.
Rather than focus on the immediate gratification of a rental property, you have to think about desired annual income. A single property might not bring in enough to make it worthwhile. You might need several to achieve a decent income in the future, so make sure what you’ll get out of it in the long run is worth what you put into it.
We’ve all been duped by the glamour of HGTV and other real estate channels. The allure of making tens of thousands on a certain project has brought many so-called real estate investors out of the woodwork. After a few weeks in the business, they realize they’re not cut out for real estate after all.
You should understand the basics of the market and spend plenty of time doing research on it. You must apply marketing tactics, show your property like a pro, and know the ins and outs of drafting a contract. This all takes time and money, and it’s not nearly as easy when you’re actually doing it.
When you’re just starting out, being a landlord will be more of a sporadic, long-hours side job than a full-time gig. After you gain a little experience and acquire several properties, you might love the work and want to earn a full-time income investing in and renting out properties.
But for the time being, it will be a little more than just a job. You’ll have your day job, and then come home to work on things like answering tenant concerns, drafting contracts, working with realtors, and cutting the grass. This isn’t including the calls you’ll get at 3 o’clock in the morning when your tenant’s toilet floods.
That being said, you can free up a lot of your time by hiring property managers. They’ll handle a lot of the grunt work so you can enjoy the profits. This requires a monthly fee, so you’ll have to factor that into your costs and make sure you can still turn a viable profit.
We’ve all either had or heard horror stories about that landlord who never gets around to doing repairs, no matter how often you’ve hounded them. The problem was less likely because of poor communication and more likely due to lack of funds.
Along with the time it takes to create a profitable property, you’ll need money. The home might require certain updates, or you’ll need to make emergency repairs. You don’t know when disaster will strike, and if you don’t have the funds to cover it, your tenants will have grounds to exit their lease early.
You can’t simply wait for your savings to build up with the monthly rent payments. Your tenant might call you with a serious problem two weeks after they move in, and you’ll have to make the repairs. Otherwise, you’ll find out really quickly that you weren’t ready for the responsibilities of a landlord.
When you allow people to spend a lot of time on your property, you have to take into consideration the safety of it. Even though they’ve signed a contract and they pay you rent to live there, it’s still your responsibility to eliminate all hazards. Otherwise, you could be facing an expensive, stressful lawsuit.
Liabilities on a rental property include things like tree houses, play structures, creaks in the backyard, climbing trees, lifting concrete sidewalks, broken stair rails, and more. If your property is in general disrepair or there are small nuances that you never got around to fixing, a good lawyer can make a case for why you have to pay the medical bills when a tenant gets hurt.
This isn’t to say that properties containing liabilities can’t successfully be converted to a rental. You could take down the tree house and fix the sidewalk. But do you want to go through that? More importantly, do you have the money? It’s something to think about.
You might not be ready to be a landlord yet, but that doesn’t mean you can’t get there, especially if you have a great team of property managers behind you. Green Residential can handle tenants, rent collection, landscaping, liabilities, contracts, and so much more so that you can sit back and enjoy the profits. If you’d like to talk about turning your property into a profitable rental, contact us today for more information.
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