Nobody really knows the total number of people who consider themselves landlords in the U.S.
The IRS puts the estimate at 7.1% of tax filers. They also claim that 17.1 million properties generated income for their owners,” according to David Bitton at Doorloop.com.
The most interesting statistics are of a financial nature. Bitton explains that, according to the US Census, “. . . landlords’ income is typically solid, earning up to $97,000 annually. It’s $35,000 more than the actual median household income.”
If you’re toying with buying a rental property, read on as we discuss five often-overlooked factors you should consider before becoming a landlord.
1. Legal and financial responsibilities
Being a landlord involves more than just collecting rent. You need to familiarize yourself with local landlord-tenant laws, which can vary significantly from one jurisdiction to another.
Understanding your legal obligations as a landlord is essential to protect your rights and avoid potential legal troubles down the road. We urge all new landlords to consult a legal professional to ensure compliance.
Moreover, being a landlord requires a solid grasp of your financial responsibilities. You’ll need to factor in costs such as property maintenance, repairs, insurance, property taxes, and possibly mortgage payments.
Be prepared for unexpected expenses, such as a leaky roof or a broken furnace, which can quickly eat into your profits. A comprehensive financial plan will help you weather these challenges.
2. Time and commitment
Owning rental properties may appear to be a passive income source, but it requires a significant investment of time and energy if you don’t hire a property manager.
From finding and vetting tenants to addressing maintenance requests and handling administrative tasks, being a landlord is a commitment that demands your attention.
Consider whether you have the time and willingness to take on these responsibilities. Are you prepared to be available 24/7 for emergencies? Can you handle tenant inquiries promptly?
If you’re already juggling a busy schedule, you might want to think twice before becoming a landlord. Alternatively, you can hire a property management company to handle these tasks, which will cut your profits.
3. Dealing with Difficult Tenants
As a landlord, you’re likely to encounter various types of tenants, and not all of them will be easy to deal with. While most tenants are responsible and respectful, there may be instances where you have to handle difficult situations.
Late rent payments, property damage, noise complaints, and even eviction procedures can be financially, emotionally, and mentally challenging.
Developing strong communication and conflict-resolution skills is crucial to handle these situations effectively. Being fair, firm, and proactive can help maintain a positive landlord-tenant relationship.
However, if confrontation and problem-solving aren’t your strong suits, being a landlord may not be the right choice for you.
4. Market volatility and vacancies
The real estate market is prone to fluctuations, and vacancies are an inevitable part of the job.
Assessing the local rental market and gauging the demand for rental properties in your area is important. Understanding the vacancy rates and rental prices will help you make informed decisions and set appropriate rent levels.
Additionally, periods of vacancy can result in financial strain, as you’ll still be responsible for mortgage payments and other property-related expenses. To avoid undue stress, have a financial buffer to sustain yourself during these lean periods.
5. Emotional attachment
While it’s natural to feel a sense of attachment towards your property, especially if it’s your former home or an investment you’ve poured your heart into, emotional attachment can cloud your judgment as a landlord.
Remember that this is a business venture, and making decisions based solely on sentimentality may not be in your best interest.
Treat your rental property as a business asset and make decisions based on sound financial considerations. Keep emotions at bay when dealing with tenant issues or making decisions about repairs and upgrades. It’s important to detach yourself emotionally and approach situations pragmatically.
Remember, being a landlord is not for everyone, and that’s perfectly okay. Weigh the pros and cons, evaluate your personal circumstances, consult with your legal and financial advisors, and make an informed decision.
