Many real estate investors are enticed by the idea of rental income and long-term wealth. Before jumping in, it’s important to objectively assess the pros and cons of being a do-it-yourself (DIY) landlord. There are certainly major benefits, but also substantial responsibilities and risks involved.
1.Potential Rewards of Becoming a Landlord
Consistent Cash Flow
The main appeal of rental properties is the steady cash flow. As rental payments come in monthly, you start building a secondary income stream. According to real estate data firm Yardini, the average gross rental yield nationally is currently about 9% per year. With wise investments, being a landlord can deliver reliable passive income.
Appreciation
Real estate values tend to go up over time. As your rental property appreciates, you’re building equity and net worth. Appreciation provides the opportunity to access stored value later through refinancing or selling.
Tax Advantages
Among the tax benefits landlords can utilize are depreciation deductions, mortgage interest and expense write-offs, and capital gains deferment through 1031 exchanges. Savvy tax planning can boost overall returns.
Leverage
You can leverage other people’s money by financing rental properties with mortgages rather than paying all cash. This allows you to purchase a larger asset while only providing a portion of the equity upfront.
Inflation Hedge
Historically, real estate values and rents tend to rise over time along with overall inflation. This makes rental property a potential hedge against inflation eroding the value of money.
Forced Savings & Equity
Making mortgage principal payments steadily builds equity ownership in the property, like a forced savings account. This stored wealth provides options later in life.
Achieving Financial Goals
Generating enough rental income to replace your job or retire comfortably is possible through real estate investing. Rentals can serve as an engine for attaining financial freedom.
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Potential Challenges of Being a Landlord
Finding and Keeping Good Tenants
Locating renters who pay on time and treat your property with care is paramount. Late and missed rent payments put your income at risk. Frequent turnover also means extra work filling vacancies.
Major Responsibilities
From maintenance and repairs to pursuing non-payment and evictions, landlording is far from passive. Hiring a property manager adds significant cost. Self-managing can be stressful without experience.
Unexpected Costs
Appliances, roofs, plumbing…things will break. Budget-busting repair bills come with owning property. Having ample reserves is crucial to handle surprise expenses.
Dealing with Regulations
Navigating landlord-tenant laws, fair housing rules, zoning codes and more is complex. Staying current and avoiding violations is essential. Non-compliance can lead to lawsuits.
Property Damage
Irresponsible tenants or natural disasters can damage your rental, potentially costing thousands. Having proper insurance provides vital protection from losses.
Illiquidity
Property can’t quickly be converted to cash like stocks or bonds. This limits flexibility. Most mortgages also have prepayment penalties limiting exit options.
Is Becoming a DIY Landlord Right for You?
Does the income potential outweigh the responsibilities and risks? Analyze if you have:
– Enough capital for the down payment and maintenance fund
– Time and temperament to address tenant issues
– Organization to handle legal compliance
– Risk tolerance for unexpected costs and vacancies
If becoming a landlord seems risky or beyond your bandwidth, that’s okay. Investing through real estate investment trusts (REITs) is a more hands-off alternative. Or partner with a property management company for expertise.
The Bottom Line
Becoming a DIY landlord has clear rewards but also substantial risks and responsibilities. The key is determining if the benefits outweigh the drawbacks for your situation. Partnering with a professional property management company can help minimize many of the challenges.
Property managers provide essential expertise in areas landlords often struggle with:
- Finding and retaining excellent tenants
- Handling maintenance issues promptly
- Dealing with legal compliance
- Enforcing lease terms and collecting rent
- Marketing vacancies and filling them quickly
This lifts the day-to-day burden from your shoulders. A property manager also brings established systems and economies of scale that individual landlords lack. At Intempus Realty, our full-service property management solution solves the cons of being an independent landlord. We supply the skills and support to help you successfully invest in real estate with minimal hassle.
Contact Intempus Realty for consultation. Discover how partnering with a property manager can make owning rental property more profitable and passive. With our expertise guiding you, real estate investing can pave the path to financial freedom.
