What does it take to be a landlord?
One of the most common ways to invest in real estate is to buy a house or small apartment building and rent it out. According to the latest American Housing Survey, there are more than 33 million rental housing units in the U.S., about 60 percent of which are owned by individuals.
Acquiring a rental property sounds like easy money -- you’ll acquire equity in the property while someone else pays the mortgage. But dealing with maintenance and business issues -- not to mention the occasional ornery tenant -- isn’t a job for everyone. Before you hang out a vacancy sign, ask yourself if you have the skills to handle the job of landlord:
Commitment. Being a landlord is a hands-on job, and you don’t get to set your own hours. If a tenant calls in the middle of the night to report a burst pipe, you must deal with the problem. That’s why experienced landlords suggest living no more than 45 minutes from your rental property.
Patience. Landlords who try to fill vacancies as quickly as possible may wind up with less-than-ideal tenants. No property owner wants to leave a rental unit empty for long. But taking time to screen applicants is always worth it. You should do a credit check, ask for and follow up on personal and business references and call the applicant’s previous landlord.
Fairness. Screening your applicants doesn’t mean you can reject them for reasons such as age or race. If you do, you can be sued for discrimination.
Savvy. You don’t need to be a lawyer or accountant to be a successful landlord, but a little knowledge of the law and accounting principles helps. You need to be familiar with the laws governing landlord and tenant relationships in your community, and understand the tenant’s rights as well as yours as a landlord. Bookkeeping skills and knowledge of relevant tax rules will help you keep tabs on the profitability of your investment.
Detachment. Many good landlords are friendly and approachable. But beware of becoming too chummy with your tenants -- you may need to be firm if someone falls behind on rent. If you’re a doormat, some tenants will treat you like one.
Do-it-yourself skills. If you can wield a hammer, wrench and trowel you can save money and make sure repairs are handled promptly. If your handyman skills are limited to mowing the lawn, you’ll need to hire skilled workers, and the expense will cut into your return on investment.
Tolerance. Being a landlord can be like having a roommate. You’ll have to put up with habits that may not jibe with yours, as well as the occasional damage to your property -- particularly if you’re renting out a furnished unit. Make sure you can deal with this.
Few people possess all these qualities, but four or five are essential to making it as a landlord. If you’re not landlord material but still want to invest in rental property, consider hiring a property management company to look after repairs, rentals and so forth. This could cost 10 to 15 percent of the total rental income from your property, so make sure your investment will still pay off.