The Pros and Cons of Being a Landlord
Today's market of real estate makes more and more people prefer renting to buying, due to their financial status. This is why lots of investors in real estate consider becoming landlords too. Some people wish to convert their family home into a rental property, especially when they can't sell the place. Others buy real estate with the sole purpose of renting out the whole place. One can find a property to buy with quite a low interest rate and a low price and rent it out for a standard price. As a whole, real estate has never looked more tempting than now. However, it is advisable to first look at the pros and cons of becoming a landlord.
1) The tenant actually pays off your mortgage! The reduction to the loan adds up over the period of time, which means that you will have more profit when you decide to sell.
2) You can take advantage of tax deductions, but you need to pay tax on capital gain for any profit when you make a sale.
3) You can get inflation to work for your benefit. When you own a rental property, a potential inflation causes the rental rates to go up, while your biggest expense (the mortgage) remains a fixed amount. This results in you getting a bigger cash flow the longer you have the property.
4) Most people choose to become landlords, because if they manage the property and the tenants well, this will guarantee them a steady income for years to come. Even if the income is not very big in the beginning, it can turn into a substantial one after a while.
5) Despite what you might have heard, being a landlord is not that time-consuming. The biggest work is the upfront work, which is dealing with the tenant, and drawing up the agreement. After this initial process you have to be available for any issues in the property, for regular inspections and provided that the tenant pays their rent regularly, you wouldn't have that much work around the property.
Like every other business, becoming a landlord brings its own risks, the common ones being: a tenant who doesn't want to pay their rent and tenants who don't take good care of the place. Be aware of the risks of becoming a landlord before you continue with this undertaking.
1) Can't find a tenant. This is one of landlords' biggest concerns, especially when it's not due to their management, sometimes one simply can't get a tenant for months.
How can it be avoided: Research the market properly and realistically price the rental property or room. If you offer good conditions with a reasonable price, there is always a great demand.
2) Is it going to be profitable? When you decide to buy a rental property, this is a huge investment, so you need to be certain whether the deal is worth it.
What to do about that: Prepare a cash flow statement based on several factors to ensure that you will get a return on the investment.
3) If you choose the wrong tenant. This is one of the most common risks, but unfortunately it's not easy to realize that before the tenant moves in. A nightmare tenant could even lead to an eviction, which is a difficult process no landlord wishes to come to.
You can avoid this by: You should screen your tenant in full detail and conduct a thorough background check.
4) Unexpected expenses: The rental property will eventually need some repairs, as it is with any home.
How to deal with this matter: It's good to have a reserved fund for such additional expenses. You can't do much to prevent problems from happening, but you can give the tenants thorough instructions on safety use of appliances and require extra care.