Are you thinking of purchasing an investment property or are looking to rent out a unit within your home? While being a landlord can turn an easy profit, it can also be a lot of work with a great deal of preparation before that moving van arrives. Let’s explore some of my top tips you should consider before you roll up your sleeves and try your hand at becoming a landlord.
1 – Do It Legally, Or Don’t Do It At All
It’s not uncommon for people to seize the opportunity of an extra property, space or room and rent it out to a potential tenant for some extra cash. However, before you start posting ads for a new tenant, you’ll want to make sure you have all the legalities lined up and fully understood.
Things such as zoning laws and fire codes are all specific to secondary properties and rented spaces within your municipality, and should always be up to snuff before you let a tenant move in. More so, it’s suggested that you have a lawyer look over your lease agreement and insurance liabilities that come into play if and when you become a landlord.
2 – You Have To Spend Money, To Make Money
While renting out a property or room can be a great way to add some extra income to your wallet, it’s not all profit, profit, profit. It’s estimated that the additional costs of preparation to rent and on-going maintenance can take up a couple month’s rent each year. Before your tenant even moves in, you may even be on the hook to pay for soundproofing, new appliances and even fresh paint. Not to mention, adding tenants to your property may require you to upgrade your electrical system and water tank, in order to support the added user(s).
After you’ve got a renter, the additional costs don’t stop. Almost all landlord/tenant acts put the responsibility of repairs, maintenance and upkeep at the hands of the landlord, and failure to do you so could result in a messy small claims court legal battle.
3 – If You Want An Income, Make It A Job
If you’re thinking that becoming a landlord is a quick and easy profit, think again. While renting out a property can in fact add some extra cash flow to your life, it’s not without effort. In order to subsidize the additional costs of a second mortgage and upkeep of another property, being able to be a hands-on handy man with your investment property can save you lots of money in the long run. Things such as broken appliances, clogged toilets, electrical and heating problems are bound to pop up while you’re a landlord, and being able to save on calling a repairman can keep your profits safely in your wallet.
4 – Added Income, But Maybe Not Value
While the addition of a rental unit on your primary residence can serve as a benefit to you, it may not necessarily add any value to your home as a whole. Quite often, having a rental unit can prove to be a difficult hurdle to overcome when it comes times to sell your home. Be sure that you plan on being a long-term investor, in order to make adding the rental unit costs worth their while. It’s suggested that if you don’t plan on keeping your home, with the rental unit in it, for a least 10 years, becoming a landlord may not be the right move for you.
5 – Have An Exit Strategy
Don’t go into the landlord business without an exit strategy. Unless you plan on awarding your time to being a landlord as a full-time job, it is suggested that you stay invested long-term, but keep the end game in sight. A good place to start to define your ending point is by envisioning how much financial gain you’re looking to make, and what the money is for. For example, if you are prepping for retirement by stocking up some extra cash, keep your exit strategy on track with your retirement plan. Or say you’re using the extra cash to help your kids with college, keep your investment goals aligned with their timeline. Whether you choose to continue afterwards can always be re-negotiated with your own number crunching, but keeping a plan is the best way to stay on track to save your profits.
Trying your hand at becoming a landlord is about more than just monetary gains. There are many aspects to consider and plenty of ducks to line up before you let a tenant move in. If you have any questions about adding a rental unit to your property or you are looking to obtain a mortgage to fund your new investment property feel free to give me a call at 705-315-0516. I am always here to help answer questions about your financial future & real estate goals.