Owning a home is the American dream, but it doesn’t come without responsibility, and if you have a home or homes that you want to rent out, that responsibility increases dramatically. Income from a rental property might seem like easy money, but before you decide to rent your home, make sure that you’re prepared for the downsides to managing a rental property. Your dream home could very easily turn into a nightmare.
Do your homework
Before deciding to become a land baron, research the landlord/tenant laws in your state. You might find that there are things that a landlord is bound by law to do or provide that you don’t want to accept responsibility for. Once committed to listing your property for rent, make sure to construct a binding lease, and that it follows the laws within your state. You should be able to find examples of lease agreements online, but it’s a good idea to consult with someone who has experience in that area.
Be prepared for vacancies
If your rental property carries a mortgage, make sure that you have enough money saved to cover the payment for at least several months in the event that the home is vacant for a time. The monthly rental income might be enough to pay the mortgage, but your mortgage company is going to require payment on time every month, whether the property is rented or not. When I decided to take my home off the market and rent it instead, I took a loss more than once when I was between tenants, but fortunately I was able to juggle some funds and make my payments on time. If it had been more than 2-3 months, I would have been in trouble.
Tenants who don’t pay the rent
No matter how careful you are about screening tenants, even someone with good credit can fall on hard times and not be able to pay their rent. Even with a legally binding lease, you can’t force someone to pay if they don’t have any money, and there are certain legal protocols that must be followed before you can evict someone. You might still be left paying a mortgage with no rental income coming in, even though the house is rented. As above, make sure you have the funds to cover such a scenario or your own good credit might be affected by your tenant’s financial situation.
Property management can be costly, as well as time and labor intensive
No matter what shape your rental property is in, things can still go wrong. As any homeowner knows, there’s always something that needs to be fixed – usually at the most inopportune time. In your own home, you might try to put things off as long as you can, but if you’re managing a rental property, you won’t have the luxury of putting some things on the back burner. As a property owner, you’re required to keep your rental home in a good state of repair for your tenants. Will you have the funds available to replace a broken water heater, or fix a malfunctioning furnace with very short notice? Are you handy enough to perform basic maintenance and repairs yourself, and do you have the time to tend to them?
If you’re moving out of the area and your house hasn’t sold, you might have considered listing it for rent until the market gets better, but that comes with its own set of issues. If you don’t live nearby, who is going to check on your property? Do you have a trusted friend or family member who can be available to handle any legal issues, or fix things in your absence? That’s a lot of responsibility to put on someone else’s shoulders, and while some real estate companies also offer property management services, that comes with a fee. I enlisted the services of a property management company when I rented out my home, but after paying their fee, I barely had enough to cover the mortgage on the house with the amount of rent I was able to get. Add in repairs that came up occasionally, and I ended up a little short a few times.
A rental property is an investment
Whether you want to rent out your own home that didn’t sell, or buy and rent homes as a business, property management is an investment, and all investments come with risks. Being a property manager can provide a lucrative income, as long as you have an umbrella to help weather any storms that might come your way.
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