Being a landlord comes with a variety of different challenges that you should consider before deciding to purchase a property to earn income collecting rent.
Investing in real estate is one of the most reliable methods of building your wealth so you can retire comfortably and leave significant assets to your preferred heirs. You can build wealth through property investment via either capital gains, collecting rental income or both. As far as earning rental income you may want to take a minute to think about if you really are ready to do what it takes to be a landlord. The following are some challenges landlords commonly face.
Finding the right property
The first thing you need to do before you can even start being a landlord, is find a property that you want to buy. There are several things that you will need to consider in order to ensure the success of your landlord endeavors. The price to purchase the property has to still leave you enough margin to earn a profit from collecting rent. In some market conditions this can be quite challenging.
Preparing the property
You may find that the rental property you have purchased is not ready to be put on the market for a variety of reasons. It could be that there are some structural issues you will have to fix before the building is in compliance with safety regulations. You may have some aesthetic modifications you want to make, such as repainting the walls or installing new flooring. It may also be necessary to hire a house cleaning service to make sure the unit is ready to be shown to potential tenants.
Finding a tenant
After you have made the necessary preparations to show your rental unit you will have to go through the effort of finding the right tenant. One way to do this is to hire a property management company that will vet potential tenants on your behalf.
You can also tap into your own network and see if any friends or family may be interested in renting the property from you. There are also many websites made especially for landlords to connect with renters. However, performing a tenant search yourself can take up considerable time and effort.
Once you have found the right tenant you will still have work to do. There will be plenty of hassles that you will have to deal with resulting from the tenants living their daily lives in your rental unit. This may include leaky pipes, clogged drains, malfunctioning garage doors and issues with roommates. Another common issue is the need to replace or repair appliances such as refrigerators, microwaves or dishwashing machines.
Also, some tenants may be more difficult and high-maintenance than others. You may end up having to deal with constantly late rent payments and regular calls complaining about minor issues. Tenants may also cause damage to the unit in the form of stained carpets or holes in the walls.
In some cases, if you are not careful or are particularly unlucky you may have a tenant sue you for one reason or another. This can result in you losing money in court or at least end up wasting a lot of your time.
There are a variety of financial aspects that come with being a landlord that you should consider. Of course, the cost of purchasing the property in the first place is significant. However, the costs of maintenance, potential lawsuits, compliance with regulations, insurance, property tax and more can add up to be a lot in many instances. Therefore, make sure to have a comprehensive financial plan for your rental property enterprise.
The information contained within this document has been obtained from sources considered to be reliable, but we do not guarantee the foregoing material is accurate or complete. Any opinions are those of the author and not necessarily those of RJFS or Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.