Are You Mentally and Physically Ready to Become a Landlord?
So you have heard over the last decade or even longer, that the key to getting rich is to own and manage real estate investment properties. In other words, become a landlord.
So you have watched the late night gurus tell you how easy and profitable it is. In fact, you can even do it with no money down, purchase a tax lien, buy an REO from a bank and so forth.
For someone like me, a homeowner with no experience or formal education in renting properties, can I do it and become a landlord?
Is it easier to invest in commercial apartments or should I start with a single family home or how about a condominium unit?
I believe that it is possible to make a good living and profit from real estate rentals. However, there is a lot of work that you need to get yourself familiarize first.
Obtaining the property is most likely the easy part. I will write, not from theory but from first-hand reality.
What is it that they do not tell you, especially on the reality rehab shows that have a house completely rehabbed in one or two hours before your very eyes?
It is the day to day management of your new found property that you have taken on as your ticket to wealth.
First of all, we will assume that you had just enough capital to purchase your properties, and you “thought” you had enough cash reserves to fix up the properties.
Some you will keep for long-term cash flow and some you will flip for short-term profits. Either way, like most Americans who get into real estate, they are the “everything” landlord.
Being a landlord is not at all as easy as it appears it is. If you are the type of person who is prone to stress, this may not be for you.
So let’s assume that the worst case scenario is that you are going to do it all yourself or employ a small team.
Here is what to expect. Let’s discuss rehab first. This is a trade-off between spending your time versus spending your money for someone else to do it.
Even if you know how to replace and repair walls, kitchens, flooring, bathrooms, is it worth the time if you have another source of income as well.Anytime you take doing that, will, in fact, take away time for other money making opportunities!
So you have to count the lost opportunity costs of time over money. Is it going to better serve you to do it yourself or pay someone? Maybe it may be a mixture of both. My suggestion is if you want to be a landlord and your plan is to do everything by yourself such as repairs etc. then don’t do it.
You have to count the cost on this. You must ask yourself what your time is worth and what the return on investment is going to be.
Then, who is going to screen tenant applications and collect the rent and deal with hard to work with tenants? Is that going to be you as well?
Dealing with tenants takes up valuable time. This is true, especially with the non-payers. Have you fully immersed yourself in the landlord/tenant laws of your state and locality?
Where I live, unless you own the property in your name, not a Limited Liability Company or other corporation, you have to hire an attorney.
Since companies are persons, if you do not have a law degree, you cannot represent another person in court. That is the deal.
Have you taken that cost into account?
Then there is the unexpected. One winter in 2013, one of your 36 unit buildings with a central boiler system had burst. Are you ready to receive a call from your tenant that water was flooding all over the place?
You may have to stop your one money-making venture (financial planning) and become “Mr. Plumber”. Are you ready for this?
Yes, you probably saved over $2,000 in labor costs, but then again maybe you also missed the opportunity to write another piece of Insurance business that would have created a higher return on my time and replaced the $2,000.
So these are just a few of the examples one needs to consider before jumping head first into real estate.
If you decide and feel that you are ready to become a landlord, here are some tips for you.
Always take your work seriously
When it comes to being a landlord, one must take the business as a business to be a successful person in this field. Maintenance should be done on time; one should never compromise on these things to become successful.
At best or if you can afford it, hire someone to manage the property for you especially if you own a few rental properties. You cannot do everything by yourself and still become very successful in this business.
This is a business and must be treated as a business.
Do your best not to let the bad apples get in
Screen your applicants or tenants accordingly. Perhaps this may be the most important thing a landlord should do. You do not want bad tenants. Although you may never find that best tenant for your property, at least by proper screening you are minimizing your risk of renting your property to the so-called “bad tenants”.
There are a lot of good possible renters out there. Do not rush. It is usually worth the wait.
Be professional in dealing with your tenants
You should not be too friendly with your tenants, but treating them with respect is a must. They should be treated fairly and should be provided with all their rights. Just because you own some piece of property doesn’t mean you are better than them.
Being fair is good; you should not be too good rather too harsh on them.
Be ready for any fix-ups and or damage to your property
Checking on your property on a regular basis is essential. Even though you have the best tenants, it’s always a good practice to look after your property. Doing this will give your tenant the impression that you care about your property and them.
Now when I said checking on your property doesn’t necessarily mean you will be the one to check on them. I would suggest that you hire someone to do that job. Limit your exposure to your tenants as much as possible.
If you’re really serious about becoming a landlord, my recommendation to you is to start out slow and work your way up to a larger portfolio of holdings.
Begin with the end in mind
What are your maximum holdings going to be and what is your exit strategy going forward? Something to think about!