Becoming a landlord is a fabulous way of earning a secondary side income. However, it can also be a lot of work. What’s more, you might not start seeing much of a return for all your efforts until several years later.
The landlord lifestyle isn’t for the faint of heart. You regularly have to shift large sums of money around and make difficult decisions. You also have to have an eye for quality – both for the properties you purchase and the tenants you choose to fill them.
In this post, we ask whether you have what it takes to become a landlord. We run through some of the pitfalls and the qualities that you need personally.
Do You Have The Stomach To Deal With Taxes?
If you work for a regular employer, they take care of all your taxes for you. It just comes out of your payslip at the end of the month. But if you become a landlord, you’re essentially working for yourself – and that means that you need to file independently.
Taxes for people who rent out real estate can be quite complicated. There are all kinds of deductions, additions and credits that you will need to explore. The task is actually quite complicated, which is why most landlords hire the services of a specialist accountant to help them.
Can You Cope With Tenancy Issues?
Not all tenants will pay you on time every month so you need to prepare yourself for this in advance.
There are several ways you can deal with non-paying tenants:
- Confront them yourself
- Use a property management company to do the work for you
- Use rental payment insurance scheme to cover losses
Each of the above methods will eat into your returns. The most popular option is the second one: using a property management company. However, you may want to confront tenants yourself if you have the personality to do it.
Can You Accept The Risks Of Becoming A Landlord?
Becoming a landlord comes with various risks. If you don’t fix something and it later hurts a tenant, the courts could hold you responsible. Trips and falls in your properties could also lead to liability.
As a landlord, you need to insure yourself up to your eyeballs. Liability insurance is essential in the event that your tenants decide to sue you.
However, you also need to make sure that you are not negligent in any way as this can invalidate your policies.
Do You Have The Money?
Becoming a landlord is a big financial commitment. If you want to rent out a property to the buying public, you need to own it first. And that requires making a substantial down payment.
Down payments are typically higher on properties that are not your first home. So you may need to pay 40 percent of the cost upfront.
You also need to have extra cash available to pay for repairs, renovations and other necessary property work. Some months will be “void” months because tenants are either moving in or out. You’ll have to factor these into your calculations too.