Becoming a landlord can be a great way of gaining a passive income, but before you decide to rent out a property, you should carefully consider all aspects of what it will entail.
Only when you spend time weighing up the pros and cons can you determine whether becoming a landlord is actually worth it.
Being a Landlord Can Require a Lot of Time and Energy
You may think being a landlord does not demand much of your time, but that is not always true.
Yes, it may be quick and easy to find contents insurance if you are renting out a furnished property and with iSelect – how much is landlord insurance can be discovered with little effort. But other things take more time and effort.
You can certainly reduce the amount of time and energy you need to spend on your rental property by using a property management firm, but you will still need to do things periodically, such as remodel units or even evict tenants.
If you are looking for a way of gaining a passive income that does not require much of your attention, becoming a landlord might not be the right option for you.
Being a Landlord Can Be More Expensive Than You Think
As long as you factor in your outgoing costs when you first calculate how much you can earn from being a landlord, you will not be surprised when you have to find the money for various expenses.
On the other hand, if you do not consider any of the costs that come with the job of being a landlord, you could have a nasty shock.
Expect to spend around 1% of the property’s value each year on maintenance. You will also need to consider long-term repairs. Generally, a new roof should be installed every fifteen to twenty years and appliances should be updated every five to ten years.
The Good News Is: Expenses Are Tax-Deductible
One great thing about becoming a landlord is you get to earn a passive income. But the news gets even better. As a landlord, all of your rental property expenses are tax-deductible as business expenses.
So, even though you will have to spend money on your property intermittently, with things like repairs and upgrades, you can deduct those expenses when it comes time to do your tax return.
As a Landlord, You Need to Ensure You Stay Legally Compliant
As a landlord, you will need to ensure you stay compliant with legal requirements.
For example, in the U.S., you will need to ensure you follow the rules set out by the Americans with Disabilities Act and the Fair Housing Act when screening prospective tenants and responding to tenant requests.
A Rental Property Can Pay for a Mortgage
Another excellent thing about renting out a property is: it pays for itself. If you have a mortgage on the property, the rental income will cover your mortgage payments and related expenses.
However, be aware that there could be periods when the property is empty, when you cannot find new tenants, so you will have to have enough cash in the bank to cover your mortgage payments during times when the property is unlet.
As long as you put money aside from your rental income each month, and spend time calculating income, outgoings, and potential non-occupancy, you can still make a tidy profit from becoming a landlord.
When you rent out a property to pay for the mortgage, you will eventually end up owning the property outright without having had to pay for it out of your own pocket.
