Around 6% of Americans over 30 own more than one property, which can entail either a summer home or a series of rental properties scattered all over the map. While some landlords are happy with the passive income of owning just one other unit, some prefer to own many properties and become a full-time landlord. Without an experienced local agent in your corner, it might seem like there’s a high barrier to entry into becoming a landlord.
Check out our guide to understanding how much a landlord can make to help you decide whether to become one.
Funding is Your First Hurdle
To become a landlord, you only have to own one unit of property you’re not a resident of. The more property you own, the more you stand to make. However, if you’re low on funds when you start, you need to navigate paying for your property investments.
Getting a rental mortgage is harder than getting a residential mortgage. Most Americans struggle to get together the 20% down payment on their home. If you’re investing in a multi-unit property, that 20% will be a much higher figure.
Even with the help of an experienced local agent who can help you find the best deal in town, you need to work with a lender interested in teaming up with you. A lender will want to see your strategy, your projected earnings, and how much the property costs versus how much it will take to rehab or renovate it. A direct lender is the best way to build a relationship and build a portfolio or rental properties.
Fannie Mae has a whole directory of foreclosed homes online. This is a great way to get started, as you could get a low price on a short sale that a financial institution is looking to get rid of. If you find a property on their site, there’s a good chance you can get them to finance the home.
You Need to Devote a Lot of Time
If it’s not already clear from researching, you need to invest time in becoming a landlord. When you own a rental property, you’re on call 24/7 in ways that most other people aren’t. The people who live in your properties could have problems that arise with any domicile except that responsibility is yours, even in the middle of the night.
There could be a burst pipe, an HVAC system that falls apart, or something as bad as a fire and landlords have to be around when this happens. Bad landlords who don’t repair things on time are subject to building bad faith with tenants who might stop paying the rent on time or might treat the property poorly.
The time and money to make necessary repairs are vital to charging the optimum amount of rent. If you’re already working over 40 hours a week, it’s hard to manage more than one or two properties on top of this. If you don’t have the money to hire people to fix things, you must do it yourself.
When you juggle 10 or more units, this can become quite a heavy load to deal with, not to mention managing all the move-ins and move-outs that occur over the year.
There Are Other Regular Costs
Expect to pay all kinds of other regular costs as a landlord. On top of paying the mortgages on any properties you don’t outright buy in cash, have lots of tools, supplies, and equipment on hand for dealing with problems. Fixing leaky toilets and repainting walls are small compared to the kinds of structural maintenance that many landlords have to manage from year to year.
In between tenants, the wear and tear on the building will add up. If you want to attract tenants, you need to keep the costs low. However, each tenant that moves out will cost you money in repairs, repainting, and replacing older appliances.
This can cut into your earnings.
As a landlord, insurance is vital to both holding onto your investment and protecting your tenants. Most times, your lender will require you to stay insured because if the insurance lapses and the building collapses, they’ll have nothing to recoup and you’ll have no asset to pay them with. Premiums for rental properties is up to 25% more than the cost of homeowners insurance, so be prepared for these high fees.
So How Much Can Make?
With all these upfront costs, it might seem like it’s hard to break even on rent. Even if you own property in New York City or near Silicon Valley, the cost of everything will go up in relation to the cost of living. You can charge a higher rent but your plumber, electrician, and other maintenance staff will cost more.
When you’re looking to invest, it’s important to look into cities where there are neighborhoods that are bouncing back, whether from the housing crisis or years of divestment. Rustbelt and midwestern cities are good choices and cities are within an hour of the major metropolitan centers of the U.S.
Landlords usually make money over time. Once the down payment is covered, most landlords can clear the costs of the mortgage with rental income. Landlords need to build a bank of cash to pay for repairs aside from the money they pay themselves.
The math might be tricky but the calculation over the course of a 30-year mortgage could be high. However, that needs to be divided by 30, meaning you should earn a healthy amount from several units to live comfortably. Owning the property can be a valuable asset, but not one you can cash in for several decades.
An Experienced Local Agent Can Help You Get a Return
One of the best ways to end up with a solid return on your investment is to work with an agent who knows how to find you a great deal. Becoming a landlord can be a great way to earn passive income or a complete career shift and each path depends on how much you earn or save on your first investment. Clever Partner Agents can help you sniff out the best buys in your local area and even help you qualify for a rebate of $1,000 or 1% of any property you purchase over $500,000.
Contact us today to pair up with a Partner Agent from right in your backyard who knows where the best investments are.