October 22, 2008

Are you cut out to be a landlord?

I am fairly heavily invested in real estate. Around half of our total net worth is in real estate. My wife and I own a rental out of state that is managed, we own 50% share of two properties with my father and he manages those plus we are renting out another house here and managing that property ourselves. My father has been a landlord for over 25 years now. He currently manages 21 individual rental units across 5 properties. I grew up seeing all the work that my father put into running his rentals. Between my fathers experiences and my own I have a decent knowledge of what work it takes to be a landlord and trust me there is a LOT

It might seem that all you really need to do is cash a rent check, but theres much more than that. Normally things will run smoothly but eventually there will be problems to deal with. Being a landlord is like taking on a second job. The more units you have the more work it will entail. Some of the work isn't pleasant and

Here are the various things you'll need to spend time doing as a landlord:

Dealing with vacancies - Any time a renter leaves you will need to clean up the unit and then rent it. This is probably the most time consuming part of being a landlord. You need to advertise the vacancy, clean up the apartment, screen potential renters, show the apartment to people, do background checks, do a walk through with the old tenant and the new tenant, return the security deposit to the old tenant, and get the rent and deposit from the new tenant. On average you'll probably have to deal with a vacancy every 12 months.

- Something might break at any time and when it does you have to fix it or pay someone else to. Be prepared for random calls at any time and day. If a tenants heater goes out at 2am on Christmas morning then its YOUR responsibility to fix it. If a picky tenant is annoyed by how the blind in their kitchen doesn't go up and down properly then you ought to go look at it. The more work you do yourself then the more time it will take. But even if you hire all work you'll still have to spend time managing whomever you hire.

Paperwork - There is a lot of paperwork involved in running a rental. Among the things you must do : you have to record all the rents, you need to record when people pay and if they're behind, you have to deposit checks, you have to handle utility bills, you usually need to pay a mortgage, property tax and insurance, you need to keep records of all your expenses, come tax time you have to fill out a separate schedule to report your earnings and expenses and calculate the depreciation.

Collecting rent - Usually collecting rent is as easy as opening the mail and cashing a check. But inevitably you will have renters who get behind on their rent. When renters don't pay you have to chase them down to ask for he money. This can be time consuming.

Handling problems with tenants - Part of the time as a landlord you are acting as a sort of police officer for the rules of your property. If a tenant parks their car on the lawn or makes too much noise, it is up to you to fix the problem. Sometimes tenants will have arguments or conflicts with one another and you need to decide what to do about it. You may even have to call the police on a tenant if they are breaking the law.

Evictions - Worst case scenario when you have a problem tenant will be evicting them. Evictions are not necessarily as bad as it may seem, many times the process is fairly streamlined by state laws. There rules to be aware of when doing an eviction so you have to familiarize yourself with the process. The exact rules vary from state to state. But in general you first have to serve notice. Usually tenants will leave with a notice, but if they dont' you may need to take it to court. If the tenant still doesnt' leave then the sheriff will need to come and physically remove them.

The time and skills needed to do all of the above are important. But you'll also need some other skills or aptitudes to succeed:

Fair and tolerant - You will need to be open to working with and renting to people of various walks and lives and various attitudes. Discriminating based on things like race or religion is illegal as a landlord. To be a good landlord you should be able to work with and get along with a variety of tenants. You also need to be fair with the tenants and do what is right and ethical.

Detachment - If you are prone to becoming emotionally attached to people you deal with then this can be a problem as a landlord. If you consider a tenant as a friend then its very hard to deal with your 'friend' being behind on their rent. Some tenants will abuse such situations and feed a sympathetic landlord fabricated sob stories.

Do it yourself ability or knowledge - It really helps to be able to fix things yourself. It saves money and often time as well. But if you aren't an all around handyman then it helps to at least be familiar with repair and construction work in general. If you're hiring plumbers then its best to know what work will require so you know you're paying the right amount.

Legal and business savvy - To be a good landlord you should be able to handle or understand all the financial dealings. You must also understand tenant landlord laws.

So you can see that there is really a lot of work and skills involved in managing a rental property. If any of the above is not something you can handle or want to do at all then I wouldn't recommend that you become a landlord. If this kind of work is fine to you and something you can easily handle and have the time available to do then you might consider managing property. If not then you might want to stay out of direct real estate investment or possibly invest in rentals but use a professional property manager to handle the work.

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