You’ve heard that you can get rich quick by purchasing property and renting it out. Is being a landlord the best way to retire early, or should you stick to your day job? Before cashing out your retirement and buying a fixer-upper, make sure you understand these important facts to know before you become a landlord.
You’re Always on Call
When a pipe bursts, a heater fails or a neighborhood dispute escalates, your tenants will call you. Be prepared for late-night interruptions and Saturday mornings spent at your rental properties. You’ll need to learn basic plumbing, conflict-management and yard maintenance skills if you want to keep your tenants happy and your rents flowing into your accounts. You can hire a property management company to run everything for you, but you’ll pay a hefty fee. According to Zillow.com, you’ll pay an average of ten percent of your monthly rent to the management company.
You Must Learn Local Laws
Depending on where your potential rental property is located, you may need a permit or official inspection before looking for a tenant. Local laws also dictate how you can use a security deposit, when you can enter your property and how you can pre-screen tenants.
You should also know the landlord-tenant laws that cover your state and the entire country. For example, you cannot discriminate against renters with children or service animals. You also cannot make a decision based on a potential renter’s age, disability status, race, sex or other personal characteristics.
One Bad Tenant Can Wipe Out Your Profit
Unless you’re managing dozens of multi-family units, you’ll likely be operating on low profit margins for years. When you only own a handful of properties, a tenant who skips out on rent for a few months or causes extensive damage to one of your properties can leave you in the red for the entire year. That’s why it’s important for landlords to run background checks and screen for tenants with previous evictions or property damage convictions. However, screening tools sometimes confuse applicants with similar names, according to NBC, so before you reject an otherwise-perfect applicant based on a background check, you may want to talk to the applicant first. You can also request a higher-than-normal security deposit if you’re concerned. If you do have a problem come up, you might want to get landlord representation.
Pet Policies Are Prudent
Many renters want to bring a cat or dog with them, so you’ll need to decide if you’re willing to allow furry friends and what types of restrictions you’re going to impose. For example, you may want to limit the breeds or sizes of animals in your properties. Some landlords prefer renters with pets because those renters are willing to pay higher rents in addition to monthly pet fees, but other landlords find that pets cause so much damage that it’s not worth accepting them, even with higher rents to offset the clean-up costs.
Budget for Maintenance
Your rental income needs to do more than cover the mortgage. You’ll also want to charge a high enough rent that you can build up a cushion for replacing garbage disposals, repainting between tenants or putting in a new roof after hail damage. Don’t operate on such a thin margin that you’re forced to become a slumlord.
If you can find the right property and the right tenants, you can sit back and watch your bank account grow. Before you reach that stage, you’ll probably face a few bumps along the road, but with the right attitude, you can overcome these setbacks and enjoy life as a landlord.