People ask me whether they can really make money as a landlord. This is the classic approach to property investing and the short answer is yes, investors can make good residual income from rentals. But they have to know what they’re doing!
Here’s what you need to know:
The right location increases your chances of getting quality tenants. Rents are higher in better school districts or near desirable amenities. Pay special attention to changing neighborhoods. Is the area cycling upward, or declining - this influences current and future rental rates!
Consider the overall cost of holding the property: mortgage, ongoing repairs and maintenance, HOA fees, time spent managing the property and/or paying a property manager, property taxes, advertising of vacancies, etc. and determine whether the rental price will comfortably absorb those costs. You must also have enough financial reserves to manage these payments even if the unit(s) is vacant.
Be picky in choosing renters because it can be extremely difficult to evict them even if they damage the property or fail to pay rent. Always conduct a background check. Get their employment history (with work references), personal references, credit history, and conduct an in-person interview. While intuition isn’t foolproof, if you get a bad feeling or even a single red flag pops up, don’t rent the property to this person. It’s better to sacrifice a few months of vacancies than to rent to the wrong tenants. Where possible, enter into annual lease agreements rather than month-to-month rentals to reduce vacancies. Always collect a security deposit and at least the last month’s rent in advance.
Being a landlord isn’t just about collecting a nice check every month. But with research and planning, investing in rental properties is a viable option for making good residual income in real estate. And who knows… you might just become the next Robert Kiyosaki!