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Property Management Blog

Published on Wednesday, October 29, 2008

The Pros and Cons of Landlording

Reality Check
 
You may believe that being a landlord is nothing more than a means to extra income. But being a landlord is much more; entailing work, time and worry. Even if your rental property is in tiptop shape and all your tenants pay promptly and take care of your property, you will still face expenses and time-consuming duties each month. You should know that up front. Simply put, landlording can be lucrative and rewarding,but it will always require effort and time.
 
Now let us take a look at some of the factors you should consider before you jump into renting your property.
Landlords of All Sorts You may be considering renting out the second floor of your two-flat, or buying a 10-unit apartment building in another state. No matter what the size and scope of your plans for buying and renting property, the rules, guidelines and advice in this book will still apply—though you may have to consider how certain factors fit your landlording situation.
 
Financial Factors
 
Everyone who picks up this book is interested in landlording so that they can make money. There is really no other reason or benefit for becoming a landlord. You can make money on real estate appreciation, on rental income or on both. Generally speaking, your goal is to:
 
a. take in more money in rent than you spend on the mortgage and your expenses and/or
b. let your tenants’ rent pay for a property’s expenses so you can reap the appreciation.
 
Buying the right real estate is a secure investment that can provide a solid income and pave the way to more property purchases. The advice in this book should help you choose the best property for your goals, set your rents correctly and earn money. However, before we get into the details, consider these advantages and disadvantages:
 
Financial Advantages
 
• Investing in the right rental property can be the wisest thing to do with your money. You might say, “It is not the rental—it is the real estate.” Choose your property (or properties) wisely and you will be financially secure for life.
• You can take advantage of tax write-offs and deductions for your rental properties, which can add up to huge savings on taxes.
• You can use the equity you build in a rental property to invest in more property, and thus expand your “landlording empire” without spending all of the money in your bank account.
• As long as you have paying tenants in all your rental units, landlording ensures a steady income.
 
Financial Disadvantages
• The initial buying or converting of rental property is a huge investment for most people. Unless you have a spare condo or house ready to rent, you are going to spend a lot of your money on real estate.
• Maintaining that property—and your new landlording business—will also require some money. You will have expenses for decorating, repairs and maintenance; possibly for hired help such as an accountant, lawyer or maintenance help; and general business expenses.
• Over time, you may find that your property value is not increasing as much as you thought it would. It is crucial that you continually look at the “big picture” value of your property, along with your current and potential rental income, to make sure you are coming out ahead.
 
Real-Life Experience
 
“Being a landlord is financially rewarding, but it can be fairly expensive.”
–Tamera Brake, Independent Landlord, Elkhart, Indiana
 
Taking Time
In a perfect world, you will end up with rental properties that are in great condition and never require repairs, tenants who are happy and complaint-free and never leave. Even in these ideal conditions, you will still need to devote some time every month to the following tasks:
 
Accounting - Make sure rents are paid and deposited, and taxes and insurance are up-to-date.
Maintenance Is the grass mowed or the sidewalks shoveled? Gutters or furnace filters cleaned? Smoke and carbon monoxide batteries working?
 
Communications - Is everything OK with your tenants? Check for problems with the property or with neighbors, along with any other nuisances. Also stay informed on issues with the neighborhood, rents/expenses in your area and other landlord issues.
 
And if conditions are not ideal, plan on spending a great deal of time advertising and showing the property, screening tenants, keeping your rental units in good condition and handling repair issues. Depending on the size and condition of your property, and the turnover rate of your tenants, landlording could become your full-time job. That is OK—as long as your salary for that job is acceptable!
 
Real-Life Experience
“ You have to take a leap of faith letting renters move into your property. You are giving people a home, and it is their home. You have to go with that.”
 
–Paul Lorenz, Independent Landlord, Paducah, Kentucky
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Landlord Knowledge Base

If you’ve ever considered investing in a few rental properties in Philadelphia or Bucks County, PA now might be a good time. Prices are still low in Philadelphia, but have been on the upswing. According to the National Association of Realtors, the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases. 

New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rentals market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”The more skills you bring to the table to get into Houses for Rent in Philadelphia Philadelphia or Bucks County, PA and the more time you have to devote to your properties, the faster you can make a return on your investment. 

But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new rental properties, and what you can do to mitigate how much they cost you:Handyman:  You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

  • Painting and paint removal
  • Drywall repair
  • Minor appliance repairs (fixing a leaky toilet or faucet, among others)
  • Installing tiling or flooring, moldings, windows, doors
  • Refinishing decks, cabinets and other wood items

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location in Philadelphia or Bucks County, PA , but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager As the owner of a handful of rental properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

  • Serve as a handyman
  • Advertise vacancies in your units
  • Show apartments to prospective tenants
  • Review rental applications
  • Collect rents

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on. 

Real Estate Agent: Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor in Philadelphia or Bucks County, PA to show rentals once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your Houses for Rent vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units in Philadelphia or Bucks County, PA, the services of a realtor would set you back between 10-20% of the unit’s rent per month.  Mueller recommends interviewing with several brokers before making your final decision to invest into Houses for Rent .

The Bottom Line: As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your Houses for Rent, new rentals, you can buy close to home and start small. It is best to begin with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.

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