Becoming a Landlord: The Pros and Cons
If you are considering getting into the real estate investment as a
landlord, you are not alone. There are many investors that buy a
property and rent it out as a way of making money. In actual fact, many
people have turned this real estate investing method into a full-time
profession and many of them have made millions by doing this. They have
concluded that investing in real estate, especially as a landlord,
brings much more returns than in stocks or other investment options.
There are many advantages of becoming a landlord as listed below:
1. Set up a constant income stream
You will receive your income month after month like clock work as long
as someone is renting your properties. Furthermore, many investors start
out with only one or two properties, and then quickly improve their
portfolio. Eventually, they have several properties that are all working
for them simultaneously. In short, they will have an income stream set
up based on each property.
2. Freedom of time and work
Being a landlord is not like working in an office, you do not have a lot
of work except some administrative work each month when it comes to
collecting money. Even though you will be responsible for up keep on the
rental units, but you can always hire others to complete the maintenance
work for you. This will never add up to a full-time job.
3. Tax Advantage
Becoming a landlord can brings some considerable tax advantages.
Actually, favorable IRS rules are one big reason why so many fortunes
have been made in real estate. There are generous tax breaks offered to
landlord who rent out their properties. As a landlord, you can deduct
mortgage interest and real estate taxes on rental properties. If you pay
mortgage points, you must amortize them over the term of the loan
(unlike points on a mortgage to purchase a principal residence, which
can be deducted immediately). Moreover, you can also write off all other
operating expenses such as repairs and maintenance, utilities, yard
care, homeowner association fees, insurance and so forth. The best part
is that you can depreciate the cost of residential buildings over 27.5
years, even while they are increasing in value.
As expected, there are a number of drawbacks of becoming a landlord too.
Even though there are a range of reasons to not become a landlord, you
must keep in mind that there are many myths that you hear are blatant
exaggerations. Here are some drawbacks of becoming a landlord:
1. Responsible for the upkeep of the rental units
As a landlord, you will be responsible for the upkeep on all of the
units that you are renting out. This could be a major problem especially
if you are renting out an old property that barely passing the housing
code. Even though it is impossible to avoid every issue that may arise,
you can cut back on them by investing and renting out a new property
that has quality facilities that do not require constant fixing.
2. Not getting paid on time
Many landlord depend on incoming rent checks to pay the mortgage or to
get by each month. If they are not getting paid on time or worst at all,
they are put in a bad cash flow position. This means that anytime
somebody is late with their rent that you need to hunt them down and try
to get the money that is owed. In other words, becoming a landlord also
means that you also have to turn into a debt collector. Sometimes, this
is as easy to do as making a phone call. In other cases, it may take you
weeks or even months to collect your rent.
3. Responsible for the safety of the tenants
When becoming a landlord you will be responsible if something happens to
them due to your negligence. It is, therefore, important to know what
you need to do as a landlord and follow the rules exactly who they are
outlined.
There are drawbacks to becoming a landlord that has never been debated.
This is due in part to many myths that surround this industry. Even
though there are some inherent drawbacks, they do not cancel out all of
benefits that go along with becoming a landlord.
To sum up, the best thing to do if you want to become a landlord is to
know what you are getting yourself into. This is best done by
researching the industry and talking to others landlords.
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