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The Advantages and Disadvantages of Being a Landlord

There are many benefits to being a landlord, but the truth is there are also drawbacks that you need to consider.

Benefits of being a landlord

Additional income

One of the best benefits of owning investment properties is the rental income. If the rental income is higher than the property’s holding outlays, such as insurance, repairs, property taxes, etc., plus financing cost, the landlord gets a monthly payment, generating for you a stable source of income for as long as the property has a tenant and rent is being paid on time.

Tax benefits

Another great benefit of being a landlord is the tax deductions. There are various tax cuts that investment properties are entitled to including:

  • Business deductions (if the property is owned by a company)
  • The cost of the property, including property insurance, property taxes, and certain maintenance costs or repairs
  • Depreciation
  • Mortgage interest

A lot of these deductions are available only to rental property investors and can amount to large tax savings over time.

Equity and appreciation of the property

In most cases, real estate increases in value over time. Depending on its location, there is a chance the landlord can profit from the potential appreciation of the property on top of the additional income it generated from being leased.

Disadvantages of being a landlord

Time

Income from a rental is considered to be passive, but a rental property is not a passive investment. So much work is required in owning a rental property. Landlord responsibilities include:

  • Advertising vacancies and showing the property
  • Screening renters
  • Collecting deposits and executing leases
  • Tenant communication
  • Managing maintenance and repairs
  • Collecting rent
  • Filing evictions

One investment property may not entail a lot of work, but several properties will. Some landlords choose to hire a property management company to help them manage their rental property. Whether you manage your rental property yourself or hire a property manager, there is a fixed time obligation to investing in rental property.

Risk and liability of renting a property

There are certain risks and liability when a property is rented to a tenant. These include a lawsuit from a renter who is hurt in your property or inability to abide by your state’s tenant-landlord laws. On the other hand, a landlord could find themselves pursuing damages against a renter who damaged their property after they were evicted.

There are means to minimise risk, such as getting a sufficient liability policy for the property and putting the ownership of each property in a separate company, but the risk remains. Keep yourself updated on federal, state and local rental laws, and purchase adequate coverage to further protect yourself.

Maintenance and repairs

Properties must be maintained and cared for over time. It will suffer general wear and tear, or tenants caused damage to the property, items will have to be replaced, fixed or updated.

In some instances, unplanned expenses will come up. Some of these are:

  • The roof needing to be replaced sooner than anticipated
  • A pipe bursting, flooding the home
  • The air conditioner or hot water service breaking 
  • Finding the home in disarray after a tenant has left

Allocate a part of your rental income for ongoing maintenance and repairs, and be always ready to work with renters, contractors and repair people to fix the problems.

Long-term investment

Rental properties should be considered as long-term investments, as the gains are maximised the longer it is owned. Your money is tied up in a property for years to come. If your property comes with equity, you have the chance to leverage a part of that equity. However, the liquidity is far less in a rental property compared to alternative investments like real estate investment trusts (REITs).

Vacancy

All is well when a property is occupied, but when it is not, the landlord remains responsible for paying the property’s outlays and financing expenses. If the vacancy is longer than expected, it may be financially draining to continue the cost of owning the property.

Common Mistakes to Avoid When Setting Rental Rent


It is easy enough to set rent, but experts strongly recommend to seek help from property professionals in order to keep a good cash flow and serviceability throughout their journey.

One of the best ways to set the right rental price is by checking comparable properties in the market. A real estate property manager can do this for you but be ready for the hard sell of the agent trying to win the management listing by offering low fees and providing a high expectation. You can also get appraisal online but you should know that you are giving free property and personal information that can be sold to marketing firms.

Also, the rental prices will also depend on the present supply level and demand in the area.

Mistakes to avoid when determining rent

  1. Automatic rent increase

Rental price should always in sync with the state of the market. But with that being said, owners must avoid the tendency to take the current rent and raising it by a certain percentage without evaluating the present market, particularly if the property experienced a prolonged vacancy or a long-time renter has moved out.  Smart investors are up to date with the present status of the dynamic property market.

  1. Saying no to decreasing rent

Smart investors will not say no about cutting rent if the market demands it. A lot of the times, a shortage in tenant application is due to the fact that the rent could be higher than what the market dictates.

Rejecting a cut in rent may negatively affect the portfolio as the harm in a prolonged vacancy will probably be bigger than just removing a couple of bucks worth of weekly rent. Each week an owner refuses to implement the desired rent is a direct and costly blow to the return on investments.

  1. Comparing apples and oranges

When checking out comparable properties to determine the right weekly rent, I advise investors to look at homes in the same area and with the same features, including the number of bathrooms, bedrooms and car spaces, how old the property is and nearby facilities.

  1. Using rent to recoup expenses

It is not true that determining rent is an economic decision. It is a mathematical one. You shouldn’t use the monthly cost of your property investment as the basis for setting rent. There is no use putting the rent at $450 per week just because it’s the amount required to pay the loan.

Tenants don’t think about that when making the decision to apply for your property. The truth is, they do not care.

 

 Try considering “The tenant frame of mind”.  I seriously urge property investors to put themselves in the tenant’s shoes rather than the landlords. What is essential in determining an accurate rent is to check the present market, utilise free online tools out there, and begin with an expansive search of comparable homes prior to limiting it to specifics.

My final advice to investors is: Heed the market when the home is advertised and react quickly to what it is telling you.

 

Remember, you can always change your property manager if you are unsatisfied with their services and you don’t need to wait until your tenant moves out or their lease ends.  It can be done at anytime!  This is your investment and your business!

Contact us at One Agency Pinkerton Properties if you would like to know how we can best serve you!