Probably no one grows up wanting to be a landlord. But you know what? It’s a lot more flexible and lucrative than many of the other careers about which people dream when they’re children.
And before long, many more people will undoubtedly wake up to the fact that owning rental properties might possibly be the most lucrative long-term investment that’s available to them on the open marketplace.
Why Be a Landlord?
Owning rental properties gives you multiple financial benefits, as well as the sort of lifestyle perks other people can only daydream about having when they’re in another career. Conditions for investors in rental properties are trending in the right direction.
“With renter households growing at a faster rate than owner households, landlords are at an advantage in the rental market,” investor Andrea Collatz writes. “With the current investment potential of real estate, you may want to take a good look at the benefits.”
The top benefits of landlording include:
- Semi-passive monthly income
- Tax advantages and kickbacks
- Property value appreciation
- Diversification of investments
- Career freedom and flexibility
That’s just the start, though. As you build a portfolio, these benefits begin to compound. Even if you take it slowly – adding one property a year, perhaps – you can build a pretty strong portfolio over time. Eventually, your “passive” income will become enough to live on.
Five Tips for Landlording Success
In order to enjoy all the advantages of being a landlord, you have to do several things right. Here are five crucial tips for success.
1. Be Conservative with Your Numbers
When you run the numbers on a possible investment property, you should be very conservative. Always round them up rather than down.
When calculating your potential income, expect at least one month of vacancy in each year. In terms of repair costs, the general rule is that maintenance will cost 1.5 times the monthly rent. (If you charge $2,000 in rent, you’re likely to spend about $3,000 a year in maintenance.)
2. Hire a Property Manager
Don’t try to do everything on your own. Solo landlords often have a hero complex that drives them to try to do everything themselves.
This is the quickest way to burn out and compromise your investments, however. Hiring a property manager to oversee your portfolio is the best decision you could make.
They’ll handle everything, from screening tenants and collecting rent to scheduling repairs, and even handling the most unsavory facets of the job like evictions.
3. Don’t Get Emotional
When evaluating potential investment properties, it’s easy to get excited and throw out a bigger offer than you should. This is a huge mistake.
If you remember nothing else from this article, remember this: There’s no room for emotions in real estate. You make your money on a property when you buy.
If you overpay, you’re most likely never going to get that money back. Be as objective as possible and run everything through clear and concrete mathematical formulas and cash flow projections. Even if the numbers come close, if they don’t work, don’t do it.
4. Treat Your Tenants Right
Treat your tenants with kindness and respect. When they report a problem with the property, send out a maintenance crew immediately.
If they need something, pick up the phone and offer to help. Don’t berate them or disrespect their basic rights. Be a good person and you’ll attract good tenants.
5. Reinvest Your Profits
New landlords are tempted to take all their new monthly income and upgrade their lifestyle. This is another big mistake.
There will be plenty of time to upgrade your lifestyle in the future. That time is not now. The best thing you can do at this point is to reinvest your profits.
Take 100 percent of the profits you earn from your first rental property and stash it away in a separate savings account. Once that account gets big enough, buy a second property.
Next, take the profits from your two rental properties and invest those into a third (and so on). If you adopt this approach, you’ll be able to expand your portfolio much faster and eventually reach a point where you can start pulling out money to live on.
Putting it All Together
Being a successful landlord isn’t as challenging as you might fear. In a sense, it’s a formula.
Once you know the crucial elements that make up the formula, it’s just a matter of executing. And if you follow the tips outlined above, you’ll increase your chances of success.