By Matt Casadona
Being a landlord is a great way to make money, but it isn’t always easy. Depending on how many renters and properties you have, it can quickly get complicated. Most days, you will be managing the property and dealing with tenant requests, while others, you’ll be dealing with unruly tenants and evictions. If you can’t decide whether becoming a landlord is a good idea for you, check out these pros and cons.
Pros of Becoming a Landlord
One of the most significant reasons people become landlords is to earn money. Landlords get a lump sum every single month from their tenants, which can allow you to repay your mortgage without worrying about taking on a 9 to 5 job. If you own the property you rent, you can have even greater gains.
Almost exciting as the increase in monthly income are the tax deductions landlords receive. All rental income is taxable, but there are some deductions you can take on your taxes to reduce your burden, including:
- Building repairs
- Accounting processes
- Professional services
In many cases, real estate appreciates, which means it increases in value over time. Depending on where the rental property is owned, landlords might be able to benefit from the appreciation of the property while earning extra income.
If a rental property’s income exceeds its expenses and cost of financing, then the tenants’ monthly rent payments will pay the mortgage and lower the principal balance every month, allowing landlords to build equity without paying the mortgage themselves.
Renting out a property provides landlords with an ongoing monthly income that can be used to fund retirement or build their savings. Not only that, but landlords can also choose to live in the property to save money as long as it doesn’t mean breaking any contracts with tenants.
Not only does being a landlord offer you security in terms of housing, but you can expect monthly income that will allow you to pay off debts and earn a living.
Being a landlord is similar to owning your own business. When you own a property and rent it out, you make all of the decisions regarding costs, contracts, and terms. You can also decide to sell your property and when.
Cons of Becoming a Landlord
While you will receive some deductions and tax breaks, you’ll still have to pay taxes on your income and deal with filing your returns annually and quarterly.
Investing in property means you can’t think about the short-term and will need to consider how the investment will impact you in the long term. If you decide to stop being a landlord, it will take time to sell the property and release your assets. If you sell the property too soon, you could be losing money overall.
Not all landlord expenses are deductible, so landlords have to prepare for expenses, such as:
- Tax on income
- Repairs and maintenance
- Employee costs
One of the most significant cons of being a landlord is you’ll have to deal with all of the emergencies your tenants have, which can become overwhelming if you’re the landlord of an apartment complex. Any household emergencies you have to deal with yourself can also impact your tenants, and you’re responsible for repairs.
As a landlord, you’ll need to learn about the latest property law in your state that can affect you. You can also learn about legal obligations when it comes to late payments, deposits, and evictions. While learning about the law can seem daunting, it’s worth it to know what you need to do if anything turns sour with tenants so you can protect yourself and your finances. For example, you’ll need to know how to draft a move-out letter for your tenant if you ever need to ask them to vacate the premises without evicting them.
Being a landlord is time-consuming. Along with managing contracts, performing maintenance, hiring the right people, and dealing with disputes, you’ll also need to remain in communication with your tenants to let them know news about the community and any changes you make to the policies. Here are just a few things you’ll need to take time for as a landlord:
- Tenant screening
- Executing leases
- Filing evictions
Some rental properties don’t require as much work as others, but owning multiple units will result in more time that needs to be spent. The good news is that landlords can outsource some tasks to a property management company to save time. Some properties could have a lawn and yard, that you need to take care of. Others might just be an apartment on the 12th floor of a building and requires much less maintenance and time.
Long Term Investment
Being a long-term investment can be a pro for some and a con for others. Rental properties are long-term investments. The Longer you hold the property, the more benefits you’ll see, but it does mean your money is tied up in the property for a while.
When a property is rented, then it’s usually smooth sailing except for handling requests and repairs. However, when a property is vacant, the landlord must pay the property’s expenses and financing costs, which means they could be losing money. If a property is vacant for too long, it can quickly become a financial burden.
You should have a plan for filling vacancies as quickly as possible, including advertising the vacancy and getting the word out about the benefits of living in your property.
Becoming a landlord is not ideal for everyone. Consider these pros and cons before you decide to rent a property. Make sure you understand your investment goals and can handle all of the problems that may arise. This investment takes more work than other opportunities and can quickly become time-consuming. Only you can decide if becoming a landlord is the right investment for you and your investment portfolio.
About the Author
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.