One of the popular ways to make extra money, with the help of “passive” income, is to become a landlord. The idea is that you own property that you can then rent it out. In theory, you receive enough in rent money to offset other costs associated with owning the property — including the cost of a mortgage.
Before you decide to become a landlord, though, it’s important that you understand what is often involved with owning rental properties. Here are some things to consider:
You are Responsible for the Property
First of all, you need to realize that you are responsible for the property. It’s your property, so you need to keep it up (arranging for yard care and other maintenance), and make sure that repairs are made. Simple landlords insurance can help you pay some of the costs associated with repairs and catastrophes.
Remember, too, that if a natural disaster strikes, or if a tenant doesn’t make a rent payment, you are responsible. You have to take care of the insurance claims to cover repairs, and you have to cover the mortgage payment if your tenants don’t pay rent and leave you without the income you expected. The property is yours, and you need to make sure that it remains in good repair, and that it meets code requirements.
Every state and province has its own rental laws. There might also be different laws depending on the town you live in. City ordinances on top of other laws can affect what you can do with a rental property, as well as the rights that you are required to accord renters. Before you become a landlord, you need to know the laws to which you are subject. From an expectation of tenant privacy, to zoning requirements for single and multi-family housing, to your lawful requirements to ensure the home is in livable condition, you need to know what laws apply to you as a landlord, and how you run your business.
Additionally, you also need to choose tenants. The tenants you choose can have a big impact on the type of money you can earn. Screening tenants can be a time-consuming process. However, if you aren’t careful, you could end up with tenants that trash the rental. Some might be slow paying rent, or take off without notice — or paying what they owe. Screening tenants through interviews, references, and credit checks can help you choose better tenants. Doing a thorough job in order to get the best tenants, though, takes time, and can even be expensive.
You also need to make sure you are in compliance with laws relating to equal opportunity housing and other regulations.
Hiring a Property Manager
Many landlords like to hire property managers to take care of things. However, it’s important to understand that this comes with its own risks. You will need to make sure you have a rigorous hiring process to ensure that the property manager is honest and competent. And, of course, you will need to pay the property manager out of your rental income.
For some people, being a landlord makes sense. They are willing to shoulder the responsibilities, and they are good at managing properties and people. Others, though, find the process difficult and time-consuming. You really do need to consider your own personality, and what works for you, before deciding to become a landlord.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.