Rental rates have been steadily increasing throughout the United States in the last several years, but other than major coastal cities, real estate prices have increased only in fits and starts. The combination of these two factors has increased the appeal of becoming a landlord.
It sounds like a win-win proposition, doesn’t it? Landlords can passively generate rental income that seems to be increasing year over year while waiting for their properties to increase in value.
As great as that sounds, being a landlord is not as easy it seems, and there are several things you should consider before deciding to take the plunge into becoming a landlord.
Expenses
Being a landlord isn’t cheap. There are a lot of expenses that you need to account for besides your mortgage payment. Some properties might come with a hefty HOA or Condo fee, and you also need to consider the money that goes into advertising your property, fees for rental listings, and ongoing maintenance for your property.
If you want a property manager to deal with the headache of renting out your property, that’s another 5-15% of your rental income in management fees alone.
Property Damage
Renters don’t care about keeping your property in good shape. Why should they? They’ll probably move out after a few years anyway. Carpets, hardwood floors, blinds, kitchen appliances: they’re all likely to be abused and damaged by the time your tenants move out.
You can mitigate some of these issues with security deposits, but a security deposit likely won’t cover the cost of all the damage that the tenants are likely to do.
Vacancies
You’re going to have vacant periods where your property won’t be generating any income. This is unavoidable. You need time after a tenant moves out to make necessary repairs to your property, and you may not be able to find tenants that can move in right away.
Renters Who Won’t Pay
Sometimes tenants won’t pay their rent, or they pay late, forcing you to cover expenses before the rent comes in. Evicting a renter who won’t pay is not a cheap process either. Between rents, legal fees, and other costs of enforcing an eviction, you could be out a lot of money before you’re able to start generating income from your property again.
If the market rent in your area will not cover all these expenses, becoming a landlord may not be the best idea.