Want to take on tenants? Here are some things to think about.
The idea of being a landlord may sound appealing—and it can be profitable. But the charm may start to fade after the first middle-of-the-night phone call about your tenant’s flooded basement. Owning and managing a rental property can be rewarding, both financially and personally. Just make sure you’re ready to take on whatever comes, for better or worse. Before you start daydreaming about being ruler of the roost, consider these realities:
THE REALITY The math. Make sure the market will bear whatever you need to charge in rent to make a profit or at least break even, especially if you’re buying a new property to rent out. It’s not just the mortgage payment. Consider taxes, insurance and maintenance like lawn care and snow removal. Also set aside a fund for inevitable repairs, from broken windows to a faulty furnace.
The law. Your responsibilities and liabilities will vary depending on where the property is located. Do your homework or hire an attorney. Be sure your lease is written correctly, or it might not be legally binding.
The liabilities. Having enough insurance to protect yourself from liability is essential, as is a property inspection to make sure your land is safe. Also run background and credit checks on any prospective tenants, with appropriate permissions.
The deadbeats. If your tenants don’t pay the rent on time, you’re going to have to go after the money. Be sure your lease agreement holds tenants responsible for damage to the property.
THE UPSIDES The income. Whatever you charge in rent can be used to cover the mortgage payment and operating expenses, ideally with something left over to put in your pocket. If the house is paid for, it’s almost pure profit.
The collateral. If you save up the income from your rental over time, you can use it for major purchases. But if you ever need a substantial loan, a rental property makes good collateral. The taxes. Check with your accountant, because there may be a number of tax advantages associated with owning a rental property. The experience. You might just discover that you enjoy being a landlord—especially if you’ve never spent much time doing repairs or sprucing up a property. Even if you don’t love doing maintenance, you’ll learn a lot of great skills.
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