Is It (Financially) Worth It To Be A Landlord?

Real estate investing can easily make you a lot of money, but can physically owning a property and being a landlord make you even more?

You’ll need to consider, not just the expensive down payment on a property (or properties), but whether or not you’re willing to put in the extra time it takes to fix up, maintain, and find the right tenants for your property.

Today we’ll dig into the cost of, not just financing a property, but maintaining it as well.

Before we even get to the financial aspects of being a landlord, it’s important to note that throwing money at a property will mean nothing if you’re not a good landlord.

Owning a rental property is a 24-hour responsibility. Even if you hire a property manager (which will be another big chunk of change), you’ll be responsible for any complaints, repairs, and evictions if it comes to that.

Speaking of repairs, if you don’t want to put the time (or money) into making necessary repairs, or hiring someone to do so, you won’t be able to optimize the amount of rent you can charge.

Which brings us to the financial side of being a landlord.

When it comes times to actually purchase a property, there’s a lot to consider. First things first, lets talk about financing a rental property.

We’ve written about what it takes to get a rental mortgage before, and it’s a lot harder than it may seem.

Which is why, if you can pay a large down payment, that’s your best bet. Plan on paying at least a 20% down payment, just like you would on your own home.

So where should you get your loan?

Check out FannieMae to start. HomePath by FannieMae lets you search for hones in foreclosure in any area you’re interested in, which is a good starting point, and can give you a realistic sense of how much you can afford.

It’s probably best that you work with a direct lender instead of a broker. The main difference between a broker and a lender is that a broker shops around your financial profile to their selected list of lenders, where as a direct lender is the institution actually lending you the loan.

Related: How To Get A Mortgage For A Rental Property

It will cost more to insure a rental property, especially if you don’t live in the building. You will not be able to claim “primary occupancy” on a rental property, rather you’ll be considered an investor. This means you’ll need a special landlord policy.

The Insurance Information Institute estimates that the premium is about 25% more than with typical homeowners insurance.

You may be able to increase the rent slightly to cover the increase in this policy, but depending on a number of factors, this may not be an option.

Going back to the cost of maintaining a building—this will likely be a large expense, depending on how many units your building has. As a landlord, you can’t just ignore leaky toilets or other minor issues like you might if you lived in your home and wanted to avoid spending money. If a tenant asks you to fix something, you have to do it.

And in between tenants, you may have to fix up the apartment simply due to the wear and tear of being lived in. If you want to continue charging as much as you did for the original tenant, the apartment will have to be just as nice. Of course, you can use the tenant’s security deposit if they do serious damage, but even that may not cover the whole cost.

It’s best to be prepared for the worst, rather than hope each tenant will leave the place spotless.

How much you can make as a landlord depends on the area your property is in. Obviously you’ll be able to charge a higher rent in New York City than in small rural towns.

Where you plan to purchase property may affect how much you want to put into fixing up a place (if it needs it). Try finding up-and-coming neighborhoods, like Pittsburg, PA or Anderson, South Carolina.

And most importantly, once you’re ready to let tenants move in, take your time and make sure the tenants will be reliable and pay rent. If they don’t, that’s another expense you’ll have to consider, and it may involve finding legal help if worse comes to worse.

Finally, being a landlord of a small rental property to make a little extra cash is one thing, but if you want to earn a living as a landlord, you’ll have to consider everything I mention above and more. In this instance, location matters even more! If you can’t charge a high enough rent without gouging people, you won’t be able to make a salary large enough to live in your own primary residence.

Being a landlord comes with a lot of responsibilities that require both your time and your money. But, if you choose the right home to invest in and have enough money saved up for emergencies, being a landlord can make you a lot of money, and even offer you a full-time job.