Even though I’d successfully built a property portfolio of rentals through the years, she’d met other real estate investors who seemed to be overwhelmed by the hassles of being a landlord or who had gotten in over their heads and lost a lot of money. It made her question how she, as a new investor, could differentiate herself and rise above the risks to ensure having rentals benefitted her bottom line. For one, I told her, she had me to guide her.

Is Being a Landlord Worth It to Your Bottom Line?

Like Margaret, I’ve met other investors who hesitate to invest in rental property because, after one or more bad experiences, decided that the hassles of being a landlord were just too great. They certainly aren’t alone and they aren’t necessarily wrong. Being a landlord poses serious challenges and, when it comes right down to it, is an investment strategy that isn’t for everyone. But, it can also be a critical key to creating diversification in your real estate portfolio and, potentially, long-term wealth. So, it’s important to carefully consider both the risks and the rewards—not just the experiences of others—before deciding if it’s right for you. To help you, here are the main points I shared with Margaret.

Risks of Being a Landlord

• Problem tenants. The thought of dealing with problem tenants may make you cringe and want to avoid becoming a landlord altogether. After all, there is just no way around the fact that you will eventually have to confront a tenant who is too loud, pays rent too late, or causes a considerable amount of damage to the property. And, at some point in your career, you’ll probably have to spend a large sum of time and money evicting a tenant, which can be difficult to do even in the most clear-cut of circumstances. Preventing tenant problems is not impossible. But, it takes a lot of hard work—as well as marketing, applications, interviews, and background checks—to make finding a good tenant easier.
• Ongoing maintenance. Keeping your property safe, clean, and in good working order will remain your responsibility no matter how long you own it and whether you have tenants living there or not. It doesn’t matter how exquisite or expensive that initial rehab was, either. You’ll still have to care for the lawn and pool, repair or replace appliances, and update the plumbing or electrical when it finally goes. You’ll also have to be on hand if a tenant calls about a broken heater in the middle of the night and work to fix the issue as soon as possible—or, risk getting sued. And, the costs to maintain a property just keep going up, which can cramp your style if you don’t have a lot of room for expenses at the end of each month. So, be sure to buy low enough to ensure that you do. Tree Removal Company Jacksonville
• Greater liability. As the owner of a rental property, your responsibilities as a landlord increase and, with them, your liability. That means if something goes wrong, you will be held accountable for making it right. It also means that it’s up to you to know the local tenant laws, to ensure the building is up to code, and to keep all visitors, workers, even tenants free from injury and possible illness. Just because you didn’t know about the law that requires you to disclose the presence of lead paint, for instance, doesn’t absolve you from accidentally breaking it. The only way to potentially decrease your personal liability is to increase your knowledge and your determination to always operate with integrity.

Rewards of Being a Landlord

• Passive income. The biggest draw to becoming a landlord is the possibility of earning passive income from your real estate investment. Provided you can keep your mortgage and operating expenses low, and charge your tenants market rate for rent, then this possibility can become a reality. Since the difference between what you pay out to run your property—like maintenance costs and property insurance—and what you bring in from tenants is yours to keep, the larger this margin is the better. In fact, if this profit margin is wide enough, you may be able to live off of the proceeds, reinvest them, or save them for buying more properties in the future. If you have multiple properties generating income, paying for a summer home or the kids’ college tuition can potentially come within reach. Your income potential has no ceiling if you work hard and that can be very rewarding.
• Property appreciation. Given a long enough timeline, you can almost bank on your rental property appreciating in value. And, it’s when the value shoots up that selling may be your next move. Even when the real estate market experiences a dip, the shift is seldom as severe as those that occur in the stock market. The effects don’t last as long, or typically have as great of a negative impact, either. So, even in rare worst-case scenarios—like a housing crash—it’s reasonable to expect that things will eventually turn around. All you have to do is hold on until they do. After all, investing in buy-and-holds to use as rental properties means that you, and your potential profits, are in it for the long haul.
• Tax breaks. The tax breaks that are available to landlords are another good reason to consider holding rental property. For example, you may be able to deduct the mortgage interest and other fees associated with your loan, as well as many of the costs to maintain and run the property. This is particularly good news since real estate insurance, renovation costs, travel expenses, legal fees, and other expenses could otherwise shrink your profit margin. You may even be able to deduct the property’s normal wear-and-tear, called its depreciation. Of course, you’ll want to check with your accountant for the full list of investment property tax deductions that apply to your situation. But, because it can help to pad your pockets at every year’s end, it can be worth it to do so.

In my book, the potential advantages of being a landlord outweigh the potential disadvantages. But, I’ve also been able to make the most out of being a landlord because I know where to find the best places for buying rental property and how to get a hold of some great deals. In terms of making sure you do benefit your bottom line by owning rental property, improving this part of your investment strategy should come first and foremost. And, as a long-time investor with a wide range of experiences, I’ve found a good way to do just that.

The Best Way to Make the Most Out of Being a Landlord

The truth is, it doesn’t matter if you want to buy and renovate properties to sell, rent out, or both. You simply risk performing poorly with any investment strategy if you don’t have the right resources to find the best leads for growing your portfolio.

We buy ugly houses Arlington Tx

Boy, that was stressful. And, thankfully, it’s no longer necessary. You can plug your numbers into a Google spreadsheet or use an online calculator. You can still hand write them, too, if you really want to (though, trust me on this one, I wouldn’t if I were you). But, what exactly are the numbers you’re trying to calculate? And, how can you be certain you’re doing it correctly?

What to Calculate When Analyzing Real Estate Deals

Before I detail what you need to calculate when analyzing a real estate deal, I want to emphasize why it’s important. In order to make a living from real estate investing, you have to be able to realize a potential return from every investment. The returns also have to be large enough, and frequent enough, to justify your efforts and feed your family. Adding an occasional couple thousand dollars to your bank account every year is great if your goal is to invest part-time. But, it won’t add up to a successful career unless you set your sights higher. And, honestly, whether you invest part-time or full-time, the risks to investing in residential property are the same—meaning, you could lose money if you get your numbers wrong. So, let’s make sure you know which numbers matter and how to get them as close to right as possible.

Property Purchase Price

Your total cost to purchase a property will often have the biggest impact on your potential returns. The reason for this is simple. What you spend to acquire the house determines how much money is left over to perform the repairs and still see a profit. Your total acquisition expenses include everything from the interest and fees you paid to get a hard money loan to any back taxes or liens you settled to get a clear title. Of course, the best way to adjust for these and other upfront costs is to buy as low as possible to begin with. If you forget that your total price tag is quite a bit more than the property’s list price, you risk paying too much.

Cost to Renovate

Before even making an offer on a house, it’s crucial that you know how much cash you’ll need to renovate the property in order to increase its value and, hopefully, the selling price. That makes conducting a home inspection non-negotiable and seeking renovation tips for your investment property invaluable. You don’t want to be saddled with a major fixer you aren’t financially prepared to fix, nor do you want to perform pricey upgrades for a demographic that isn’t able to afford the buy. Either scenario can cut into your returns. So, be sure to get a grip on what needs to be done, and how much it will cost you, to avoid watching any potential profit slip through your fingers.

Holding Costs

Deciding, like I have, that the benefits of being a landlord aren’t for you, and that flipping houses is more your speed, doesn’t mean you won’t incur holding costs. It takes anywhere from three to 12 months to turn an investment property around and get it back on the market to resell. And, during that time, you’ll have to pay for utilities, taxes, regular maintenance and property insurance on your real estate investment.

These costs can really add up, especially if your property sits a while before being sold. Should anything happen that delays the renovation or the sale of the house, these expenses could get extended. So, work these possibilities into your budget when running your numbers because, in this business, it’s not uncommon for the unexpected to happen. You just don’t want your funds, or your ROI, to be caught off guard when it does.

After Repair Value (ARV)

Determining the probable value of your investment property after renovations have been completed—its ARV—is what helps you decide how much you can reasonably expect to sell it for. And, calculating this number requires reviewing the sale prices of homes near your property that are of similar size, style, and condition to see what they sold for. Obviously, you want to make sure you’re comparing apples to apples, rather than your two-bedroom fixer-upper to a four-bedroom new build. Otherwise, your calculations, and your returns, will be off.

To make sure your numbers are right on, it’s not a bad idea to enlist the help of a licensed real estate agent, perhaps the one who will be selling your investment property. Since they have access to the Multiple Listing Service and, ideally, also have years of experience checking comps, establishing the ARV should be easy. And, that should make budgeting for your other numbers, and realizing decent returns, easier, too.

Relying on your own math skills to correctly calculate these numbers is now a thing of the past. But, that doesn’t mean there still isn’t room for human error when you put your pencil down and pick your smartphone or tablet up. Setting up an Excel or Google spreadsheet takes a bit of skill, as does learning a real estate investment analysis and valuation software program. And, these tools don’t automatically take into account area comps or local labor and material costs, nor do they necessarily help you estimate your returns. In my book, that doesn’t do a whole lot to instill confidence. But, there is something that can and does.

How to Approach Your Deals With More Certainty

After I’d been investing in real estate for a while, I decided to join the HomeVestors® team as an independently owned and operated franchisee. My primary reason: I’d have access to ValueChek®, HomeVestors®’ proprietary analysis and valuation software. At the time that I joined, there was nothing on the market like it. And, in terms of the program’s ability to calculate the cost of more than 80 repairs based on geographically-specific prices and estimate my potential returns, that’s still true.

As one of my fellow franchisees recently remarked, it’s like having a more experienced partner in your pocket. It reduces your learning curve so that you don’t have to stress over whether or not you’re calculating the numbers as close to right as possible. And, that makes it more likely you’ll approach every deal with more certainty.