If you’re trying to figure out different streams of income to help you get out of the rat race and start working for yourself, then you may have considered investing in some local property that you can rehab and rent out. While it is true that real estate can help you get ahead very quickly, there are a lot of factors to consider when it comes to becoming a landlord.
Growing up, my parents owned rental properties. While they did ultimately make money from these properties and were eventually able to resale them, there were issues that they had to deal with that anyone planning to invest in real estate should be aware of. Your experience may be completely different than mine and I certainly don’t want to discourage anyone from an income stream that can give them their freedom from the 9 to 5 grind. However, I think I’d be remiss not to point out these issues so you can make an informed decision.
For example, once my mom had rented to a couple who did not have any pets. However, they then moved in people with pets and those people let their very large dogs roam the basement and poop everywhere, which they did not clean up. Guess who had to get a shovel and clean it up and then bleach the basement? My poor mother, who gagged all the way through it.
That is just one of many horror stories I could tell about renting houses.
Issues with Rental Property
Some things you should be aware can happen and often does happen:
- Tenants do more damage than the security deposit can cover
- They move in and refuse to pay rent and it takes a long time to evict them. Meanwhile, they are living in your house rent free.
- They run up utility bills which you can be responsible for. This depends on your area, but most places have a rule that if the sewer bill is not paid, the sanitation department can put a lien on your house until it is paid.
- They drive the neighbors crazy
- They participate in illegal activity
- They have a million excuses why the rent is late
- They paint the walls fuchsia and orange
- You have trouble renting the property. Meanwhile, the mortgage is still due.
There are some things you can do in an attempt to protect yourself from bad renters. Sometimes these tactics work, but be aware that they don’t always work.
- Ask for references and they should include people they’ve rented from in the recent past. Family and friends don’t count.
- Require a security deposit and first and last month’s rent. People who can’t come up with this amount may have trouble paying their monthly rent.
- Draw up a lease that defines when you can come into the home (with 24 hours notice, etc.).
- Understand the laws in your location. What are your rights as a landlord and what are the tenants’ rights?
- Keep an insurance policy that protects you as the homeowner as well as the home itself
- Keep documents of the property’s condition before the tenants move in and let them know you are doing so. Videotape or photographs work well and can be used if you later have to take them to small claims court.
- Complete a background check on potential tenants.
- Check online sites and Facebook groups that list nightmare tenants and be on the lookout for these people so you don’t rent to them, too. (Check with your lawyer to make sure you are not unfairly targeting anyone, of course, but you do have a right to protect your home and your interests.)
Of course, you can still get a bad tenant, but doing these things reduces the risk.
Pros of Renting
There are some perks of renting, too:
- If you enjoy DIY projects, you can easily fix issues with a home.
- You can turn a profit, especially in areas where rental properties are in high demand.
- Your home should hold its equity and even rise in value.
- If you get the right tenants, the income comes in every month. If the tenants stay several years, even better.
The bottom line is to be cautious getting started. Either pay cash for the property or make sure you can handle the payments and upkeep even if you are unable to rent for a big block of time. Don’t forget hidden costs, such as lawn care, basic maintenance, and property taxes.
In the end, only you can decide if rental properties should make up a revenue stream for you. Being a landlord isn’t for everyone, but it can be rewarding for those who enjoy it.