Is Becoming a Landlord More Trouble than It’s Worth?

Some people claim that owning and leasing residential rental property is a surefire way to make money. In reality, it can sometimes be more of a headache than it’s worth. The challenges start early, and they almost always involve time and money.

Here are six classic challenges that landlords face. Consider these before entering the residential real estate market.

Key Takeaways

• Investing in residential rental property can be lucrative, though it can come with many difficulties.
• Potential challenges include finding good tenants and maintenance issues.
• Hiring a property manager can lessen the burden of managing a rental property but will cut into your profits.
• Removing tenants can be a time-consuming and expensive task.

Challenge 1: Finding a Property

Finding a suitable residential rental property is crucial. Buy too expensive a place, and you’ll never make money. But trying to snag a bargain can be troublesome, too. Buying a fixer-upper requires that you have the skills, time, tools, and cash to make the necessary repairs and renovations.

If you’re in no hurry, this may be a way to get a bargain on your investment. If you already have a full-time job and a family, every minute spent repairing the rental is a minute not spent on a more profitable or enjoyable activity. However, nowadays, management companies can do a lot of this legwork—from locating a property to rehabbing it—for you, for a fee, of course.

Challenge 2: Preparing the Unit

Getting just about any piece of real estate into rental condition often requires fresh flooring and paint at a bare minimum, and both items require time and money. Window screens, deck stains, and lawn maintenance are other common needs. Every time a tenant departs, these issues need to be revisited, too.

Challenge 3: Finding Tenants

Rental listings sites provide a fast and inexpensive way to find prospective tenants. You can also sign up with a real estate company that will vet tenants for you. Some realtors will show an apartment on behalf of the landlord for a commission. Another way to find tenants is to share this information with friends and family members who may be able to make recommendations.

When you vet tenants yourself, you will need to conduct credit and background checks, which can be expensive, but is often a smart idea. Responsible tenants pay their rent on time, don’t abuse the property, and don’t require you to engage in the costly and time-consuming eviction process.

Challenge 4: Hassles

Even great tenants and perfect rental properties come with a host of hassles. There are broken pipes, stuffed drains, and pet stains, for example. Tenants will want your full and immediate attention when the sewage is backing up into their home, or the cable company accidentally cuts the telephone lines.

Certain tenants pose an even more significant challenge. Daily calls and late or unpaid rent can add to the hassles.

The move-out day is another challenging time. Damage to walls, floors, carpets, and other components of the home can lead to disputes and costly repairs.

Challenge 5: Maintenance

Maintenance of significant components and amenities is a big-ticket item. New appliances cost hundreds of dollars. A new roof or driveway can cost thousands of dollars. If the rent is $1,500 per month and the roof is $10,000, you can find yourself losing money fast. Add in carpet or new hardwood floors, paint, and a new stove, as well as tenants that don’t stay long, and the property could lose money for years.

Challenge 6: Interest Rates

What do interest rates have to do with anything? Plenty. When rates fall, it’s often cheaper to buy a home than to rent, and so the demand for your unit(s) might drop. Lowering the rent to remain competitive can damage your ability to make a buck.

Important

You’ll probably need to take out landlord insurance—no, your regular homeowner’s policy isn’t sufficient.

Hiring a Property Manager

Property managers can handle a variety of roles. What that is, exactly, is up to you to negotiate with your manager. It is essential to identify what their role will be and develop a list of duties and responsibilities. Will your property manager find tenants? Or will they handle day-to-day maintenance and collecting rent?

A property manager can be an independent contractor or an employee. You should speak with your tax accountant to determine the most favorable approach and determine specific obligations you may have.

You can also hire a property management company, a firm you contract with, to deal directly with all aspects of the rental property. This can be expensive, but it may be ideal if you have multiple rental properties.

Make sure any property manager who you’re considering meets the appropriate local and national licensing requirements.

An experienced manager should help you with advertising, marketing, tenant relations, collecting rent, budgeting, leasing, and maintenance. A good property manager will also be knowledgeable about local and state laws. As the property owner, you can be held liable for the acts of your manager, so you can be sued if your manager violates any fair housing laws. 

Once you decide on a property manager and the terms of the arrangement, you should write a property management agreement that identifies the manager’s duties, compensation, and termination conditions.

A rental property provides you with the flexibility of when to sell a property. You can avoid a weak real estate market by renting the property and waiting to sell it.

Can Owning Rental Properties Be a Full-Time Job?

Yes. Some landlords treat their rentals like a full-time job. They incorporate, buy multiple buildings, and do a significant portion of the work themselves. It’s a business that requires time and energy, and a mastery of tax strategies such as rental property tax deductions and the 1031 exchange.

What Does a Property Manager Do?

A property manager can handle many of the duties of running a rental property. This includes marketing, selecting tenants, maintenance, budgeting, and collecting rent. You may consider hiring a property manager if you want to delegate these tasks, though it will cut into your profits.

What is House Hacking?

House hacking is sharing residential space by purchasing a duplex (or other easily divisible structure). It’s often a profitable undertaking. Since you are on-site and plan to take care of the property anyway, the extra cash is a bonus. Of course, living on-site means that you are always available and will be in close contact with your tenants. Plan appropriately and screen carefully.

As a Landlord, What Do I Need to Know About Section 8?

One way to earn money is by leasing to Section 8 tenants through a voucher program administered by the U.S. Department of Housing and Urban Development. Through the program, the government pays for 70% of the rent. It’s a way for you to provide housing for families in need.

The Bottom Line

Is becoming a landlord worth the effort? Only you can decide. Just be sure to look before you leap and go into your new endeavor with realistic expectations and a solid game plan. If you know what you’re getting yourself into, you’re more likely to enjoy the experience.