Becoming a landlord is a unique investment and business opportunity. Like any investment and business opportunity, there are pros and cons. For some, this is their dream job. From early life to retirement, becoming a landlord may be where you feel like you belong in the world. This is especially the case if you are a natural at scheduling and budgeting home maintenance. Perhaps you feel fulfilled making repairs and providing for the needs of tenants. However, if being a landlord is not for you, it’s important to know early. You can still invest, but you may be better off hiring a property management company. Let’s dive into the pros and cons of being a landlord!
The Pros of Being a Landlord
1. A Job for a People-Person
Landlords spend their time serving their tenants. When preparing a house, you’re preparing a home for a family. When doing inspections or providing on-call repairs, you are part of helping a family enjoy a safe home. If this appeals to you, being a landlord can be a long and rewarding type of investment or career choice.
2. Nearly Passive Income
Some rental properties are easy to manage, especially if you have your maintenance pre-scheduled and budgeted. Many people become landlords in addition to a “day job” or as part of their retirement.
Landlords can make decent money!
3. Tax-Deductible Business Expenses
Aside from the mortgage, every expense for a rental property is a business expense and tax-deductible (within reason!). Repairs, upgrades, and installations are all part of what you can deduct from your taxes which is an excellent incentive to keep your properties updated.
4. Make Use of Natural Talents
If you are handy with repairs, good at managing crises, or have other landlord-related talents, then being a landlord can allow these qualities to shine. If there is any area you are lacking, you can hire services and form a team of people that complement your abilities.
5. Pays For Itself Monthly
One of the best things about rental homes is that they pay for themselves directly. The tenant’s rent covers the cost of a mortgage and other property expenses, all profits serve as income. In many situations, tenants even pay their utilities, which balances both the monthly and long-term expenses of a rental home.
6. Equity and Property Value
Generally speaking, the longer you own the property, the more equity you own. This increases your net worth and the strength of your financial position. Over time, real estate increases in price, which, with equity, serves as another form of ROI when you become a landlord.
7. Long-Term Investment
Rental homes are a long-term investment. If well-maintained, a home will continue producing income for decades – even after the mortgage is paid. You can even leave rental homes in a trust for your next kin to sell or continue managing.
8. Manage Affordable Housing
The final “pro” of being a landlord is contributing to society, especially for affordable housing. Right now, there is a national housing shortage. In addition, thousands are in disrepair and not adequately maintained. Landlords contribute to the housing market by keeping homes in good shape and ensuring they are available to families who don't own a house yet.
The Cons of Being a Landlord
1. Annual Upkeep and Long-Term Maintenance
Rental properties require thorough budgeting. Expect to spend about 1% of the home’s value on annual maintenance. In addition, landlords should budget for long-term repairs like the new roof (every 15-20 years), new siding (10-15 years), and appliance updates (every 5-10 years).
2. Time-Consuming Investment
Being a landlord requires an investment of time and money. Even if you hire property managers, you must make final decisions from remodeling units to evicting a tenant. Rental properties do not provide as passive of income as people like. If you want an investment that doesn’t require constant attention and decision-making, being a landlord may not be for you.
3. Running Your Properties Like a Business
Investment properties follow many of the rules of a business. The home is your venue, and your customer is the tenant. You are obligated as a business owner to:
- Choose tenants fairly
- Keep the property safe
- Provide basic amenities
- Answer their calls for support
If you hire services, you must adhere to the business laws of employees and contractors.
4. Liability and Staying Compliant with the Law
Landlords are obligated to follow laws and regulations. The Fair Housing Act and Americans with Disabilities Act are two of the most important when screening and responding to requests from tenants.
5. Tenant Screening and Bad Tenant Risks
Most tenants are respectable people. But even one bad tenant can permanently damage your property in just a few months. Tenant screening is necessary and restricted by laws and regulations. This can be a discouraging but vital step.
6. Evicting the Occasional Bad Apple
Finally, the eviction. No one likes delivering an eviction, even worse to court. Even a well-managed rental home faces an unpleasant eviction process occasionally. It can be difficult, costly, and stressful for even the best landlords.
Property Management Plays a Role
The final piece of the puzzle is property management services. Managing a rental property requires regular services and procedures that a team can master. Property management teams offer full and partial support for landlords.
An involved landlord who enjoys the role will hire property managers to help with the tenant turnover process: deep clean, upgrade and repaint, optimize the rent price, market, screen new tenants, and handle the inspections.
However, landlords who don't want to be involved can hire property managers to take care of everything.
Is Landlording the Right Investment for You?
The answer depends on how you feel at the end of these pros and cons. If you’re nodding along to the pros like “That sounds like me” or “I’ve got a plan for that,” you’re in the right place.
If the cons sound like something you can handle or would even enjoy tackling, you might make a great landlord. Property managers make it possible for even uninvolved landlords to delegate most of the duties. If being a landlord sounds like a suitable long-term investment for you, consider getting landlord insurance to get adequate coverage for your rental properties.
We hope you liked our article on the pros and cons of being a landlord!