Being a landlord lets you to keep your day job as you earn supplemental income from a rental property. If you’re interested in starting your own business, you could test the waters by purchasing a dwelling or commercial structure and offering that space up for rent or lease. You can use the extra dollars you earn to save for retirement, a college education, or acquiring an additional tenant-occupied building. While the rental property game may seem simple enough, it’s prudent to examine the downsides of the business in addition to the upsides.
Prior to purchasing a property, you would be wise to consult with other landlords who have been in the business for a few years. The one common gripe you’re likely to hear will revolve around tenants. You can screen prospective tenants by running background and credit checks, but those measures can’t predict the future. Unemployment or unexpected expenses incurred by your tenant may choke off monthly rent payments, and the eviction process can take time and cost money. Even timely payers may physically abuse your property, leaving you with significant repairs that you may not be able to handle on your own.
In due time, wear and tear on your property will necessitate some repairs. The walls will eventually need to be repainted, you’ll need to get new carpets installed, and a thorough cleanup after your tenant moves out will be mandatory before you can start showing the property to new potential tenants. You might be able to handle some of these tasks on your own, but in any case, you can plan for these eventualities. Large, unforeseen repairs to your property will probably require the assistance of a contractor, which will put a dent in your savings. Without a considerable cash cushion, these expensive endeavours may have you digging into personal reserves while mortgage payments, tax bills, and insurance premiums mount. The perfect storm may develop if the property is vacant or occupied by slow payers.
Investing in rental real estate has its advantages. As you acquire subsequent properties, your management skills and a thick skin might facilitate a move away from your day job, if you’re so inclined. Hiring a property manager and enlisting the services of a contractor for repairs will free up your time, allowing you to pursue more leisurely activities. If being your own boss appeals to you, rental properties may be a way for you to achieve that goal without needing any specialized skills or education. When the dust settles, you’ll own significant real assets that you can sell or pass on to your heirs. Like any other business, property ownership presents significant challenges and promising rewards. Time, capital, and patience are mandatory prerequisites for success. Plan for all contingencies, manage your cash flow wisely, and the benefits could outshine the costs.