Can anyone be a landlord? Should I become a landlord? This article will talk about the benefits of being a landlord as well as the disadvantages of being a landlord. Circumstances can vary in the real estate industry. Regardless, there are a few key themes to consider that can help you decide if being a landlord is right for you.
Benefits of being a landlord
There are more than a few benefits of being a landlord. Some are obvious. Some may not be so obvious. We’ve chosen 5 advantages of being a landlord. Take a look at them below.
#1. The rental property is truly an asset if you own it free and clear. If not, the property is still something tangible that can be sold, borrowed against, or used in determining your net worth. If you owe on the property, your net worth can actually increase as the property value goes up and the amount you owe on the property goes down.
#2. If managed properly, you can expect the rental property to generate rental property income. Good rental income can depend on more than one factor. The property location and general availability of housing in your area can affect how much rent you can ask for.
#3. Regardless of market ups and downs, home values tend to increase over time. Due to home appreciation rates, you can expect that in the long run, your home will be worth more than at the time you purchased it. Check out this article to see how U.S. housing pricing rose 291% from 1940 through 2000 even while factoring in inflation! Also, as property values increase, you can raise rents.
#4. There are also tax benefits of being a landlord. Speak to a tax advisor to see how you can deduct expenses related to your rental property. You can also use depreciation where the IRS allows you to recover the cost of income-producing property through yearly tax deductions.
#5. Finally, appreciation and lower interest rates can allow you to refinance the property. This may allow you to pull out cash for repairs or other investments. In fact, you can use a 1031 tax exchange to sell your rental property and reinvest the profits tax free. This is a tax free exchange of property where you must reinvest the proceeds from the sale into a property or properties of like kind and equal or greater value.
Disadvantages of being a landlord
#1. One of the top disadvantages of being a landlord is problem tenants. Bad tenants can cause issues with expected rental income. Worse, they can damage your rental property and cause thousands of dollars of repairs! One of the best ways to protect yourself is to properly screen your tenants. Check out this article for tips on rental screening.
#2. Being a landlord can expose you to greater liability than a standard homeowner. Landlords are responsible for many circumstances inside and outside of the home. Tenants can decide to sue you, and landlords must make sure the rental home abides by local codes and safety ordinances. Property insurance for rental property should be purchased to cover most liabilities the landlord can face, both for tenants and the property.
#3. Unexpected expenses and repairs. A rental property is no different than the home you live in. Both require upkeep, maintenance, repairs, and money set aside to accomplish these responsibilities every year. Plus, costly repairs may be needed to restore the property in-between tenants. Many landlords choose a property manager to help them manage and maintain their properties. Read this article to learn more about why a property manager may be the right decision for you.
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