Many people consider renting out property as a steady, passive income stream. After you purchase the property, you find tenants and wait for them to pay your mortgage (if any), then enjoy your extra profit.
While being a landlord can be lucrative, it’s not for everyone. Beyond the initial investment of purchasing a home, you also have to factor in repairs and vindictive tenants. However, with the right factors, you could be one of many people who profitably rent out property and have a steady income stream monthly.
How do you know if being a landlord is the right thing for you if you’ve never rented out property before? Purchasing a property to rent out, then discovering you hate it, is a pretty expensive lesson to learn.
Luckily, there are several factors that go into being a good landlord who enjoys the process. If you’re thinking of becoming a landlord, consider these three factors for success.
For other landlords out there, let me know what made you decide you wanted to be a landlord, and what makes you successful compared to others!
It may seem strange that the first characteristic of a good landlord is temperament, but in my experience, it’s true. Just like not everyone should be a teacher, not everyone should be a landlord. There are always exceptions to the rule, but in general, consider the following in terms of your temperament for being a landlord:
- Your willingness for risk
- How you interact with people
- Your stress level
- Your time commitment
The most successful direct landlords I’ve known have a higher than average willingness for risk, are good communicators and have a lot of patience, are low-stress individuals, and are available at almost any time.
While there are exceptions, you probably won’t be as successful if you get stressed out easily, if you are impatient and hot-headed, and if you can’t answer the phone or respond to another tenant issue quickly.
That said, a lot of this can be avoided by hiring a property management company. The right property management company will handle interactions with tenants, answer their late-night, broken toilet questions, and handle evictions the right way. Sure, you will have to pay a management fee along with some type of “finder’s fee” (usually the first month’s rent), but you don’t have to deal with a lot of the headaches landlords can face.
As they say, it takes money to make money. You might have a high willingness for risk, but if you can’t get a loan, don’t have a down payment, and don’t have an emergency fund, you should probably not be a landlord. Renting out property to people, even without a management company, still costs money.
You would be incredibly surprised at what tenants can and will break. Having an emergency fund of a few thousand dollars in repairs is not unheard of, and eventually you will need to use it.
You’ll also want to make sure you can cover your payments when you don’t have tenants, or if you’re in the process of evicting tenants who won’t pay. While the rental market in many cities is hot right now, you never know when there will be a downturn. It could take several months for you to find quality tenants, and you’ll still have to pay your mortgage on that property, if you have one.
There are several types of landlords out there, and it’s up to you to determine which one you want to be. Are you going to be the landlord who buys next to a college to rent to students? Are you going to be in the urban core, renting to young professionals? How about the part of town where there’s volume, but also a high number of tenants who won’t pay on time?
There’s no right answer for the type of landlord you want to be, but consider location before deciding to purchase a property. It’s important to do some homework before purchasing a property: is the neighborhood considered up-and-coming? Are the school districts good? Is a fraternity house down the road? Depending on your ideal tenants, the answer to these questions may determine which properties you purchase.
There are many things that go into becoming a landlord, including temperament, your resources, and your property’s location. In addition, you may find it’s easier to be a commercial landlord versus a residential landlord, something you should take into account if you’re considering becoming a landlord. If you’re considering becoming a landlord, take some of this advice into account, and check out the comments for more advice from other landlords out there!
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