Over 30 percent of households in Tennessee were renters as of 2019. That’s why owning rental properties can be such a lucrative field to get into. Becoming a landlord can offer several benefits, but it also comes with some difficulties.
So, what do you need to know? Here are some disadvantages and advantages to consider when contemplating becoming a landlord.
Pros Of Becoming a Landlord
The first pro of becoming a landlord is that you can raise your income without doing a ton of extra work.
Rental properties have the potential to generate passive income. This allows you to earn money even while you’re not actively working. This can provide financial stability and freedom.
Rental income provides a consistent and reliable source of cash flow. As long as you have tenants living in your properties paying rent, you can expect regular income. This can help cover mortgage payments and property expenses, and provide you with a surplus.
Real estate properties can grow in value over time. As the property value increases, you build equity. Equity is the difference between the property’s market value and the remaining mortgage balance. You can use equity as leverage for future investments. You can also use it to improve your financial standing.
As a landlord, you have control over your investment decisions. You can choose the rental properties you want to buy. You can set the rental rates and make decisions on property management.
Real estate has historically shown the potential for appreciation over time. As property values increase, your investment can grow and provide significant returns. That’s especially true in high-demand areas.
Rental income tends to increase over time, particularly in periods of inflation. This can help protect your investment from inflation. So your property will maintain its value.
Real estate investments offer various exit strategies. You have the flexibility to sell the rental property if you need to liquidate your investment. Or use it as collateral for other ventures.
Creating a portfolio of rental properties can help build wealth over the long term. As you pay off mortgage loans and property values appreciate, your net worth can increase substantially.
Protect Your Assets By Becoming a Landlord
Rental property investments can also help you protect your wealth.
Owning rental properties can diversify your investment portfolio beyond traditional assets. Real estate often behaves differently from other asset classes, reducing overall investment risk.
Real estate investing comes with potential tax advantages. You may be able to deduct costs such as property management fees, repairs, insurance, and property taxes. That will reduce your overall tax liability.
Cons Of Becoming a Landlord
There are also some negatives you should consider before jumping in and buying up rental properties. Investing in rental properties involves financial risks.
You may face unexpected expenses like repairs, maintenance, property taxes, or insurance costs. Additionally, if property values decline or rental demand decreases, it can impact your returns.
Being a landlord requires significant time and effort. You must handle tasks like advertising, tenant screening, lease agreements, rent collection, property maintenance, and addressing tenant issues. It can be demanding, especially if you have multiple properties or difficult tenants.
Dealing with tenants can present challenges. You may encounter late or missed rental payments, property damage, lease violations, or disputes. Resolving these issues can be time-consuming and stressful. They even may require legal action.
If your property remains vacant for periods, you’ll experience a loss of rental income. Vacancies can occur due to seasonal fluctuations or economic downturns. It’s essential to have financial reserves to cover these gaps.
Landlords must comply with various laws and regulations. These include things like fair housing laws, building codes, and landlord-tenant laws. Failure to comply can lead to legal complications, fines, or penalties. Staying updated with these requirements can be complex and time-consuming.
Being a landlord can be emotionally challenging. Dealing with difficult tenants and resolving conflicts can cause stress and anxiety. It requires effective communication and problem-solving skills.
Real estate markets are always changing. So, property values can fluctuate. Economic downturns or changes in the local market can impact property prices and rental demand. That will affect your investment returns.
As a landlord, you’re responsible for the safety and maintenance of your property. If accidents occur or tenants get injured due to negligence, you may be held liable. Adequate insurance coverage is crucial to mitigate these risks.
Being a Successful Landlord
To be a good landlord, you should take a look at some of the top landlord tips. Take the time to screen possible tenants thoroughly.
Perform background checks, verify employment and income, and contact references. This process can help you select reliable tenants who will pay on time and take good care of the property.
Establish communication with your tenants. Respond promptly to inquiries, concerns, and maintenance requests. Good communication fosters a positive landlord-tenant relationship. It helps address issues before they escalate.
Conduct periodic inspections of your rental property to assess its condition. Identify any maintenance or repair needs. That way, you can prevent them from becoming more significant and costly problems.
Attend to maintenance requests and repairs promptly. Regular upkeep ensures the property remains in good condition. This can contribute to tenant satisfaction. Consider setting up a system for reporting and addressing maintenance issues efficiently.
Becoming a Landlord: Consider Your Options
Before becoming a landlord, it’s essential to think about these pros and cons based on your interests and needs. Hopefully, you now have enough to start making a decision.
Are you ready to start buying property? If you’re looking for opportunities in Memphis, contact Reedy & Company today.