Being a landlord of a rental property can be a lucrative way to make extra income, but there are also many responsibilities you’ll bear. Every year, new people enter the real estate market hoping to establish a new stream of passive revenue, but only some of them are successful. If you want to increase your chances of finding success, there are a few things you’ll need to keep in mind before you start buying properties.
What You Should Consider Before Becoming a Landlord
Consider these aspects of the job (and your situation) before you finalize your decision to become a landlord:
- The laws and regulations in your area. First, work to understand the laws and regulations that landlords in your area must follow. Some of these are common sense and apply to almost every aera of the country; for example, landlords must keep their properties safe and suitable to live in. In most areas, landlords are responsible for installing working smoke detectors, adhering to building codes, and responding to emergency maintenance requests. Some areas are stricter than others, so you’ll need to learn your local laws in depth before deciding to move forward. If you can, talk to a lawyer directly rather than trying to figure out all these laws on your own.
- The state of the real estate market. You also need to consider the state of your current real estate market. There are some trends that unfold at the national level, with real estate prices generally rising or falling based on economic activity and consumer optimism. However, it’s more important to look at local conditions, where price fluctuate based on unique local variables. You can’t time the market perfectly, but you can avoid buying property during peak periods and instead, patiently hunt for a better deal.
- Your personal finances. Before you can invest in property, you should have your personal finances in order. You’ll need to provide a down payment for the property you intend to buy, and if you’re getting a loan, you also need to have a decent credit score. If you’re currently overloaded with debt or if your credit score is low, spend some time recovering before you start looking at investing in property.
- Your available free time. How much free time do you have to allocate to property management? Being a landlord takes more time than most people think. If you don’t have many hours a week available to attend to your property and your tenants, it may be in your best interest to hire a property management firm, which can take care of most of those responsibilities for you. However, this could eat into your profit margin.
- Your risk tolerance. Even if you find a property that seems like a great deal, you’re still going to face some risks while real estate investing. There’s a chance your property will cost you more and require more repairs than it initially seems. Excessive vacancies could cause your revenue stream to dry up. Are you able to tolerate these risks? What does the rest of your financial risk profile look like?
- Your level of experience. It’s important to be honest with yourself about your level of experience in property investing. Obviously, more experienced investors tend to do better, and it’s important for inexperienced investors to acknowledge their amateurishness if they’re going to succeed. How much do you really know about buying and selling properties? What do you have left to learn? What are your weak areas?
- Your network. Are there people in your network who could help you in property management? Is there a partner who could help you offset the risks of investing? A mentor who could guide you in finding your first property? A contractor who can help you with repairs and maintenance? Consider expanding your network before moving forward.
- Your backup plans. If you encounter a problematic tenant who refuses to move out, how will you handle the eviction? If your entire property investing strategy doesn’t work out, do you have an alternative way to generate revenue? It’s always good to have a backup plan.
Learning Through Experience
If you’re new to the concept of owning property and being a landlord, it’s natural to feel a bit intimidated, or to be concerned about your lack of experience. However, experience tends to be the best teacher. Your first few property investments and choices as a landlord will be riddled with mistakes, but you’ll learn from them; you’ll figure out the approaches that didn’t work and the numbers you forgot to crunch. As long as you come in suitably prepared and you’re willing to keep learning, you can make significant progress.