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What It's Like to Be a Landlord - Pros, Cons, and the Experience
When you were ten years old, you probably never said that when you grew up, you wanted to become a landlord. But when you were twenty, and you moved into your first rental property, you probably DID dream of being the landlord, instead of the tenant. What's it like to be a landlord? What are the pros and cons? Here's what it's like to be a landlord for a day.
Pro 1: Passive Monthly Income
In its ideal form, being a landlord means that money finds its way into your checking account each month, without you having to work for it. That's a powerful thing; consider the implications of income with little to no work required by you. If it sounds like early retirement, you're beginning to understand the possibilities.
Con 1: Unexpected Time & Work Required
Of course, nothing in reality ever achieves its ideal form. Finding a good tenant is a lot of work, from advertising to showing to screening tenants to finalizing the rental agreement. Sometimes repairs and maintenance will require your attention, as will the tenant when they have questions, concerns, and problems. And if that tenant goes bad... well, that's a whole con unto itself.
Pro 2: Asset Appreciation for NetWorthBuilding
While real estate markets do fluctuate (sometimes drastically, as the late '00s witnessed), over time real estate values appreciate, alongside population growth. Developers and real estate investors essentially act as a stop-loss valve, which slows growth in supply if demand drops and values start to ebb, effectively guaranteeing long term real estate appreciation in any market that sees population growth.
Con 2: Unexpected Expenses
You can't predict when that furnace will drop dead, or the basement suddenly starts flooding. Repairs, maintenance, and periodic improvements are expenses that landlords have to budget for, regardless of how much or little the rental property earns them. Additionally, vacancies when you have no rental agreement signed will cause your pocketbook some heavy damage, as you have to carry the mortgage, taxes, insurance, repairs, eviction notice and procedural costs, and advertising costs while the rental property is vacant.
Pro 3: Diversification of Income & Investments
Diversification means risk reduction, as you better defend yourself against losses in one area by having additional sources of income and investment. If some of your retirement money is tied up in a mutual fund, and that mutual fund goes south, you'll be a far better position having additional investments in the form of income-producing (and appreciating) rental investment properties.
Con 3: Legal Liability
The miserable truth is that we live in a litigious society, and landlords in particular are targets for litigation. For some reason, people see landlords as an easy target to sue, and sue them to make a quick buck. Landlords can take certain steps to limit their liability (such as using a state-specific rental agreement with all the required disclosures, setting up legal entities to hold their assets in, etc), but these steps won't protect you absolutely. It is simply a reality of being a landlord: you must do everything you can to both avoid litigation and prevent losses due to it. There are websites that can help you with landlord legal forms, such as your state's rental agreement and required disclosures (such as EZ Landlord Forms), and landlords are well advised to speak with an estate planning attorney to discuss asset protection techniques.
Pro 4: Tax Advantages
Rental income you earn is taxable, but almost all of your expenses are tax-deductible. You can write off mortgage interest, property insurance, local real estate taxes, repair and maintenance costs, office, phone, accounting, and other costs incurred as a landlord. Additionally, you can deduct depreciation - the loss of value due to wear and tear caused by tenants.
Con 4: Bad Tenants
Bad tenants are the bane of landlords everywhere. Some don't pay, some trash your rental property, some flagrantly violate your rental agreement, some will threaten to sue the second you serve them with an eviction notice, and some are just plain rude, unpleasant, and terrible people. Good tenant screening can weed out most of these, by checking their income, employment, credit history, criminal history, and history of each eviction notice served on them, but every once in a while one will slip past your screening, and the nightmare begins.
There are many other pros and cons, from the fantastic leverage possible through signing a rental agreement and subsequent mortgage to recover almost all your initial investment, to difficult rental markets, but the fact is that being a landlord is a great way to invest money if you are willing to accept the responsibility. Do your homework carefully about the market you're considering, and if you're willing to invest the work and shoulder the risk, you might just find yourself retiring early.
Brian Gregory (The Traveling Landlord) is a landlord, former property manager, and long-time real estate investor, who has discovered how to travel the world through the passive income of rental properties. He is also a real estate writer, contributing to such online publications for landlords as NuWire Investor and EZ Landlord Forms, a provider of state-specific rental agreement packages and eviction notice forms.
Article Source: http://EzineArticles.com/?expert=Brian_Gregory
Landlords have to raise the rents on their rental properties sometimes, as their costs (mortgage rates, insurance premiums, property taxes, etc.) go up, and as market rents rise. It can be a tricky and unpleasant conversation to have with your tenants, so here are a few ideas to help make the conversation smoother and more successful.
Tip 1: Timing is Everything
Don't raise the rent in winter or fall! It's drastically harder to fill rental properties in the winter, so wait until spring when you'll be able to find a new tenant to sign a rental agreement much faster.
Tip 2: Advance Notice: More is More!
First of all, most states require you to give tenants written notice 30-90 days in advance of raising rent, which is something you need to research in your state. Additionally, however, having the conversation sooner rather than later gives you a chance to find a new tenant BEFORE the old tenant moves, creating a smooth transition with no costly vacancies.
Tip 3: Do It in Person
There are a thousand good reasons why you should have the conversation about rent increases in person, but the bottom line is that the tenant will be far likelier to agree to it if you put on your big kid pants and show up in person. People feel less comfortable saying no in person, and you will find that you make a far more charismatic and persuasive case if the tenant can see your face, watch your hand gestures, and see that you're a person with your own bills and expenses on the rental property.
Tip 4: Offer Tenants the "Assurance" of a Longer Rental Agreement
If the tenants hesitate when you tell them you have to raise their rent (and of course they will), this is actually a golden opportunity. Tell them that you understand that they have their own bills and their own concerns, and that you're willing to extend their rental agreement from 12 months to 18 or 24 months, so that they can have a written assurance that you will not raise their rent again for a year and a half or two years. Sign a new rental agreement with them, with the new amount and the extended term, and you just secured a rented property for the next two years!
Tip 5: Research Market Rents Carefully and Beat the Competition... Barely
Moving is expensive, and tenants would have to start all over with a new rental agreement and new landlord. If your rent is less than local market rents, try raising it to just under the local average, so that it doesn't make fiscal sense for your tenant to move. For example, if you currently charge $875, and area rents for comparable rental homes is $1,000, raise the rent to $975, and when your tenants balk, tell them that they're welcome to check out the house across the street available for $1,000, or the house a few blocks over available for $1,250, or the one up the street that's also $975, and explain that their rent is still below area market rents.
Tip 6: Consider Alternatives to Raising the Rent
It's possible that raising the rent is not worth the trouble, if it means losing a particularly good tenant. If you have a great tenant, consider approaching them (in person, of course!) and talking over a few possibilities. First of all, explain why you might need to raise the rent (higher taxes, etc), which most reasonable people understand. Second, gauge their reaction to the proposed rent increase. Third, if they look panicked, tell them that they've been great tenants, so you're willing to cut them some slack. Consider offering them a new rental agreement that phases in a rent increase over the next 12, 18, or 24 months. So, maybe the rent will stay the same for the first six months, then raise by $25 for the six months after that, and another $25 the six months after that. Make sure they know that you're working with them, and trying to keep the rent affordable, because they've been such great tenants.
Raising the rent on your rental agreement isn't the fun part of being a landlord, but it is a necessary part if you intend to actually make any money. Consider each rent increase on a case by case basis, be fair, be honest, and remember that securing another, longer-term rental agreement may be more valuable than an extra $15/month.
Brian is a landlord and real estate investor, who contributes articles to Ezine, NuWire Investor, and EZ Landlord Forms, a site that offers a customizable rental agreement builder and state-specific tenant notices, among other services for landlords. In his spare time, Brian is a photographer, film critic, independent film producer, and travel aficionado.
Article Source: http://EzineArticles.com/?expert=Brian_Gregory
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