8 Issues with Buying Rental Property and Becoming a Landlord

house keys handDo you dream of owning property? Perhaps multiple investment properties from which to earn a monthly stream of income? Ah, the life…

But before you contact your real estate agent, consider what’s really involved. If you want to create an income immediately, you’ll need to rent your property. Though the proposition may sound simple, it is anything but. The information that follows details the downsides to property management.

It’s not meant to dissuade you from moving forward, but instead to show you that there are downsides as well as advantages to buying and managing rental property. Don’t let the potential to earn money cloud your vision when considering whether or not you’re cut out for it.

Issues with Becoming a Landlord

1. Start Up Capital

All potential landlords consider the cost of purchasing an investment property, but many overlook the costs to remodel. In other words, don’t expect start-up costs to end at the closing.

If you buy a damaged or out-of-date home, you could spend a significant amount to make it “rentable.” Any damage to the foundation, plumbing, or wiring can cost thousands of dollars to repair. But even if you buy a property in good condition, you may still have to make changes to get it up to code. This is because many states have strict requirements for rental properties that will need to be met before you start renting.

In addition to remodeling, being in compliance with these standards can significantly increase start-up costs. For example, let’s say you purchase a recently built duplex that was previously owner-occupied. Your state’s landlord and tenant laws require that you add safety features to the property before you advertise for tenants. A breakdown of the required changes is as follows:

  • Handrails installed along the front and back entrance: $1,300
  • Front and back doors replaced with secured, reinforced steel doorways: $300
  • Peep hole installed in front door: $50
  • Deadbolt entry installed on front and back doors: $50
  • Standard dividing wall replaced with a fire wall: $1,600
  • Completed code inspection: $35

Total Cost: $3,335

2. Making Repairs

When it comes to being a landlord, two things in life are inevitable: death and repairs. Don’t even consider a property management business unless you’re sure that you can pay for repairs. Landlord and tenant laws require that you make serious repairs quickly. If you don’t, you could be held liable for additional damages.

The thing about repairs is they creep up on you suddenly and often cost a lot. For example, if your tenant calls at 11:30 pm at night to tell you the water heater has busted and is flooding the house, you have to immediately send an emergency repairman to shut off the water and dry out the carpet.

Since it’s after hours, he’ll charge you $100 an hour for each of the two hours he is there. On top of that, you’re informed that you need to replace the water heater. Since this is a repair that needs to happen as soon as possible, you head to Sears and buy the most reasonably priced water heater you see. Not only do you have to pay for delivery and installation, but Sears won’t haul away your old, broken water heater. Luckily, your repair guy offers to remove it as long as you pay him his hourly rate and cover the dump fees.

Here is the total cost for this single repair:

  • Emergency repair (2 hours @ $100 per hour): $200
  • Cost to purchase a new 50 gallon water heater: $599
  • Cost of delivery and installation: $329 at Sears
  • Cost of removal and haul-away of the old water heater (2 hours @ the standard rate of $50): $100 + $50 dump fee = $150

Total Cost: $1,278

Major problems aren’t the only issues you’ll have to account for. Some tenants will call you for everything. Be prepared to spend your free time changing light bulbs, replacing air filters, weeding yards, and spraying squeaky hinges.

for rent sign house

3. Collecting Rent

You’ll have great tenants who pay the rent on time every month. You’ll have good tenants who slip up from time to time but always let you know ahead of time when to expect the rent. And then you’ll have the tenants that don’t pay and don’t call. As a landlord, you’re going to have to play bill collector from time to time.

Ask yourself if you’re comfortable confronting your tenants before you start renting. Keep in mind that you’ll have to make judgment calls as a landlord. For example, imagine you’ve had a tenant for six months and one month he doesn’t pay the rent. You don’t hear from him for a week. Finally, you decide to call and the tenant tells you he won’t be able to pay for another 7 days. You’ll have to make a choice to either let the tenant slide or to start the eviction process. Make sure you’re comfortable making this kind of decision and sticking to it.

4. Dealing with Problem Tenants

Most of your tenants will pay the rent, treat the property like their own, and keep the neighbors happy. But at some point, you’ll inevitably have a problem tenant.

As a property manager, I saw my fair share of problems. Once, I agreed to rent a property to three college students. By the second month, they stopped paying rent. My coworker and I went to the house to talk to them. When the door opened, I was greeted by a large pole coming out of the ground and extending to the ceiling. The tenants had installed a fireman’s pole in the house, complete with a hole in the first floor ceiling and a pile of concrete on the ground. The tenants promised to pay the rent and repair the damage from the pole. Not surprisingly, they didn’t.

The third month, I filed for an eviction. After the hearing, the tenants went back to the house and removed their stuff before the sheriff and I got there. When I went inside, I found graffiti on the wall, concrete in the toilets and sink, mold in the appliances, stains on the floors, and a bright, shiny fireman’s poll.

If you’re going to be a landlord, you’re going to have to handle tenants fighting with other tenants, tenants doing damage to your investment, and tenants who don’t pay. You’ll need to know the eviction laws in your state well, and be prepared to use them.

5. Surviving Evictions

Your state’s landlord and tenant laws make evictions seem pretty simple. To start one, you go to the local court, file a notice, schedule a court date, and show up on that date. The judge then tells the tenant to leave. The tenant heads straight back to your property, quickly packs up, and walks out the door. No harm, no foul, right?

In reality, evictions are often extremely costly and time consuming. Even if you evict your tenant successfully, you likely will have incurred major expenses and lost significant time in the process.

I’ve been through it before. Here’s an example scenario of how an eviction can work out:

  1. The tenant doesn’t pay his rent on the first.
  2. The fifth rolls around and the tenant still hasn’t paid, but you decide to wait five more days to try to avoid filing an eviction.
  3. The tenth comes and you still haven’t heard from the tenant. You go to the court, pay your fee (which ranges from $35 to $100 or more, depending on your state), and the court clerk tells you that the judge is backed up. They can’t schedule your hearing until next month.
  4. Once the court date rolls around, you’re out two months rent. The judge decides in your favor, but now you have to schedule a time with the sheriff to complete the eviction. That takes another five days.
  5. You show up with the sheriff on the 20th and find that the tenant left piles of stuff behind. According to the law in many states, you now have to rent a storage locker to hold the tenant’s belongings. That costs another $50. Now, if you were very lucky, you have a vacant apartment that needs cleaning and re-renting. Even at your luckiest, you’ll probably lose at least one month’s more rent while you look for a tenant. If you weren’t so lucky, the tenant caused some damages, which you will have to repair before you can rent the apartment again.

In the end, the break down looks something like this:

  • 4 months lost rent at $750: $3,000
  • Cost to file in court: $35
  • Cost to rent storage: $50
  • Cost to make repairs: $500

Total cost to evict the tenant: $3,585

house landlords newspaper

6. Managing Your Finances

Landlords need to look at property management as a rotating door. Tenants come in, stay their lease, and then go. While some tenants will renew a lease, most will move on to the next place when the lease is through and leave you with an empty apartment.

In down times, the apartment could sit empty for several months. To be a successful landlord, you’ll need to learn to manage your finances in times of feast and famine. Some months, you’ll have full occupancy, rent paid on time, and no repairs. You’ll have to be dedicated enough to save and not spend during those months because during other months, you’ll experience vacancies, late rent, and major repairs.

A landlord’s finances do not stay constant. If you can learn to go with the flow, and plan for the unexpected, you just might survive.

7. Keeping Your Property Safe

If a tenant is injured on a property that you own, there is a good chance you’ll be sued. Sure, you have homeowners insurance, but you always have the duty to keep your property properly maintained and in good working order so as to avoid contributing to potential mishaps. By keeping your units safe, no matter what it takes, you greatly decrease your chance of trouble in this area.

In order to prevent problems, you’ll need to know the building and safety codes in your area and follow them by attending to regular maintenance and checking on your properties periodically. It may take a lot of work, but can save you a costly legal battle later on.

8. Paying Taxes

One thing you can’t overlook is taxes. Renting property is your business and so you’ll have to report the income you earn when you file your taxes every year. But one tax commonly overlooked is property tax. If you own the home you live in plus one rental house, your property tax bill could be double what you were paying before you purchased the rental. Make sure you understand the effect taxes will have on your bottom line and that you are prepared to pay them.

There are some ways in which taxes can work to a property owner’s advantage, particularly in a down housing market. Consider, for example, if you need to sell your home, but can’t recoup what you paid for it. If you sell it as your primary home, you can’t claim the loss on your taxes. However, if you turn it into a rental property first, you may be able to claim the loss as a business loss against any rental income received or your ordinary income. This can decrease your tax bill by thousands of dollars, especially if you claim a large loss and have a high income.

Final Word

Buying rental properties is a great way to make money. Just remember that being a landlord is not all fun and games. You’ll work hard for your money and may be faced with adversity from time to time. Buying rental property is not for everyone. It should be an investment option you consider only once you’ve achieved a certain level of financial independence.

Not only can start-up and ongoing repair costs be significant, but you’ll want to invest a substantial down payment in order to get the best loan terms and minimize your monthly mortgage payment. That said, be aware that in a down housing market, you could lose money on your investment and become upside down on your mortgage. Still, buying rental properties can be a great way to supplement your income, or even replace your current one.

Do you own rental property? What have you learned from the experience?

  • gina

    I have always wanted to give owning rental property a try. I have been too afraid of the pitfalls, mainly not being able to rent for a long stretch of time. I have seen several of my friends and family have to deal with this–it can really cut into any profits, and cause a good thing to become a nightmare!

  • http://madsaver.com Mac

    I too have long been interested in renting out property. And if I had the money, now would be the time to get into it with the home prices being somewhat affordable. However, getting tenants to stay & pay may be difficult. Especially since my idea is to buy some very cheap Detriot homes and rent those out…but I’m not sure how feasible that is.

    • novice_Jay

      section 8

  • Winston C

    My mom owns a renting property and it is driving her crazy. The first problem is that she doesn’t live nearby the apartment, so that makes the management of the property even more difficult. Her tenants rarely pay rents on time. There are always small repairs that need to be done. Well, she is thinking about selling it when the market gets better.

  • http://moneycrashers.com Chris

    It is definitely difficult to decide if buying a rental property is the right move. While it can be scary and risky, if done properly, success is possible. I guess the point is this: every investor has to weigh the pros and cons before becoming a landlord.

  • Karmella

    I think I’d only want to do so if I had enough units to make it financially sensible to hire a management company and to spread out the risk of losing a tenant and the corresponding income.

  • http://moneycrashers.com Chris

    @Karmella – Great point. Hiring a management company makes the entire process much easier. That being said, it can bite into your profits – as you noted.

  • Elizabeth I

    One way to deal with tenants regarding minor issues it to put a $50 clause in the lease–any repair under $50 the tenant must cover, this would include changing light bulbs, etc.

  • Elizabeth I

    Doing a thorough credit checking and finding a tenant with excellent references is a great way to ensure you are paid on time. I have had two tenants and have never had late rent.

  • Elizabeth I

    Having a management company can mean that you will be unable to deduct a loss on your tax return and often rental real estate creates a loss. This is why rental real estate can be so attractive.

    A better approach is to find a company to “rep” the property, find the tenants and write the lease. They usually charge one months rent for this service, but you will be able to deduct the loss (if it is applicable tax wise)

  • rod

    I have owned rental property for some time. I was lucky to sell my properties before the market went south. I have some advice for those thinking about gettting into the business. One have lots of cash. You will needed it. Pay cash for the properties. If you do not have cash you cannot afford to play this game. Period. Two it works out best if you do not need to work a 40 hr job.Nothing like working all day and spending your time off repairing somebodys elses problem.(for free) Rental property is a good way to stor cash. The money is made when you buy or sell the property. One does not always make money when selling the house either.. Just like the rent does not always get paid. Nothing like working a 40 hr job and taking your pay to pay housepayment of a house you don’t even live in. If you have lots a cash and want spend it…treat yourself to new car, a trip, anything but old rental house.

    • novice_Jay

      why cant one afford to “play this game “unless they have lots of cash ?
      Interests rates are beyond low and property sales where I am are very low.
      Many of the properties I am looking at mortgage +ins.+hoa’s + taxes = about 50% of the current rental market….am I missing something ?

    • http://twitter.com/MichealKennedy Mike Kennedy

      “If you have lots a cash and want spend it…treat yourself to new car, a trip, anything but old rental house.”

      Horrible advice. Those things are a waste of money, and won’t bring any kind of financial reword whatsoever, ever. Even an old fixer-upper could still bring in profit, and you’d still build equity.

  • Bob

    Real estate is a funny thing. One year I cleared $500,000. Two hundred thousand became tax preferred, and I plowed $125,000 right back into another rental which I converted to a personal residence. Right now, I have very little cash but clear about $42,000 a year in rents. I own 7 rentals plus my residence. I have had nitpickers, deadbeats, etc. My policy is to evict the deadbeats and immediately. My tenants have left behind junk and fleas, have broken things including garage doors, etc. Through it all I never blink. I simply adjust rental rates accordingly and continue. This is a long term gain akin to watching paint dry. Patience is rewarded and you must accept a lifelong commitment. I do not flip properties. Although it’s possible the tax situation can be tricky and it’s not a sure thing. In fact, nothing is sure in real estate but patience and the next group of nitpickers who try to nickel and dime you to a death, or the next deadbeats who have have good credit but feel you owe them something. Ninety percent of all tenants are decent. It’s that 10% you work to eliminate and survive.

  • Deanna

    Thanks Bob, great advice! We bought our first rent house 10 years ago for $16,000. I had a hard time talking my husband into it. If you’re married, you need to be in agreement about this or it can ruin a marriage. That 1 house was a rough start but it gave us a good taste of what it’s like. We have since seller-financed that 1st house to the tenants and we have bought 4 more. We are not planning to buy any more because of the increased government control. We’re in south Louisiana, and since hurricane Katrina it is getting harder to afford insurance and all the governmental hoops that have to jumped through. We do plan to keep the ones that we do own now. It does take a lot of patience and our rental agreement continues to grow and change with each new experience. I am struggling with learning how to eliminate the deadbeats. I have found that the nitpickers tend to go away when I refuse to answer to their every whim. For me it comes down to the fact that I love owning property that other people are buying for me. And the people that rent from us need a place to live. As long as we have a mutual, professional respect for each other, it works. I have no unrealistic expectations of getting rich from this investment. But I do look forward to my husband being able to retire from his job in 8 years when 3 of our 5 houses will be paid for.

    • Guest

      ” I am struggling with learning how to eliminate the deadbeats. ” Usually people with good credit scores make good tenants.

    • Davis

      Charge 1st month, last month, and a one-month security deposit up front. This eliminates people living check-to-check and ensure that, in the event you don’t get rent on time or something is damaged, you are covered for the two months it takes to evict and fill the unit with a new tenant.

  • Liz

    I am considering purchasing a rental property in Orlando. I’m in my 20’s and don’t have unlimited funds, but believe putting some savings towards a down payment may result in better returns than keeping it in the stock market (do people agree/disagree?). I’m looking for a property 100K or less (which does exist due to the housing crisis) that will rent for at least 1K/month. Other than location and condition, what do people suggest I keep in mind while looking at properties? Thanks in advance!

    • KMN2planker02

      both are high risk, high return investments with pluses and minuses on both sides. You have to keep in mind that for either them, its a long term investment. If you are looking to turn a profit in the short term, neither is the way to go. For rental property you must look over the laws regarding rentals, have a screening process, see what the estimated cost is for upkeep etc…aim for something that is going to be low maintenance. Also, before you even dive into this, make sure you have around 6 months of expenses covered and sitting in your bank account because you dont want to find yourself up Sh*tscreek without a paddle, a life jacket, and a flare gun.

  • Anonymous

    I just bought a property with a partner…He provided the majority of the capital in return the mortgage went in my name (he already has a couple of properties under his name). We bought a great house and all is well. I think too many people are discouraged because they worry about the risks but do not evaluate the benefits. Granted I live in Canada in a city with a growing real estate market.

  • Cosmo

    No pics of the Fireman Pole?

  • http://www.pogotips4u.com/ Pogo Dave

    I rented my house in Sheffield, UK, for 18 months while away travelling. It took just a little time to find a local estate agent who basically did everything for me. They found the tenants, set-up legal contracts and looked after rent collection and any maintenance issues that came up while I was away. That cost me 15% plus the cost of some repairs which they took out of the rent before paying it over.
    I more than covered the cost of the mortgage and the whole process was entirely painless – perhaps I just got lucky with this one-off deal.

  • Adrian M.

    and why don’t you hire a manager that handles all that stuff? your income will be less but you will have peace of mind and much time free!!

  • http://www.manhattancalumet.com/ Dennis The Menace

    Its funny I don”t know a whole lot about income property but in the post above you stated that in order to rent a apartment out your building must be up to code. I just happened to be thinking about this the other day I did not think a whole lot about it. But when you buy income property your building must be inspected by the town or city you reside in before you can rent out a empty apartment. Very good point. I believe that real estate is a fairly complex investment and it takes much time and effort to stay on top of things and this varies from property to property so thats really a good thing to take into consideration when buying a income property..

  • landlord

    my advice:
    -do not get involved unless you are good with your hands or know someone who is and will work for a reasonable price.
    -do not get involved unless you LOVE operating your own business.
    -spend a lot of time on preparing your leases and on landlord tax books. having this knowledge will save you thousands down the line.
    -be friendly but fair with your tenants. file an eviction order with the court every time they are late. they will get the message that you are a professional and start paying on time.
    -do your best to pay off your properties in full. carrying a mortgage when units are vacant can be a financial burden.
    I own 3 properties……….it is the best business move I have ever made…………..it may not be for everybody, but I love it.

  • http://twitter.com/RentingWell Renting Well

    Great article – particularly the part about keeping your property safe and managing your finances.

  • http://profile.yahoo.com/SZUQZDVAII7LQKT4CSTABHCKNM B H

    My first question is, do you own rental properties Angela?

    If I didnt already own rental proprties, I think this article would make me have second thoughts. If you are interested in a rental property business, do your own research and talk to people who are currently doing it. Looks for properties that do not need a lot of work. All the examples above are extreme and do not happen if you are patient and do your resarch.

    Owning any business is not all fun and games as the writer mentions above. Any business has the potential to loose money and be sued by customers and vendors, but if you allow fear of what could happen to stop you, where would you be today?

    My opinion is that the goal of rentals is cash-flow and not necessarily growing the value of the property, because focusing on a value growth strategy is flawed. We need cash to live month to month, not growth.

    • Jon

      Honestly, this writer has her head stuck up so far Fear’s rear-end that she feels like there are too many obstacles restraining her from going after what she wants. It is going to take a lot of work, perhaps many sacrifices but if she’s too afraid to fail she’ll never amount to success.

  • RN

    Bah. I have several rentals and as long as you appropriately screen tenants you will have limited trouble. Where landlords get into trouble is when they are desperate for tenants.

    • billy smith

      Correct !!

  • http://www.renthomefl.com/ Monique Day

    The issues you’ve brought up clearly show that the responsibilities of a landlord are time consuming and difficult, not to mention costly. However, one cost can make things easier. A rental property management company can take over these duties.

    • xxxx xxxxx

      no it’s not. you see, if there is a problem to fix, you will shop around to save yourself money. That may mean even 1000$ in some cases. They won’t, they will take care of it and give you a bill to pay. When I wanted to extend one wall I had someone quoting me 1000$ for his labor. I had found someone then who charged me 15$/hr. He was skilled, but recovery addict, he was clean and needed work. He did a great job fixing many things I wanted to be done, putting tiles and fast. Extending of this wall costed me maybe about 60$ in labor.

  • Boise Mcs

    I enjoyed reading your article. I’d like your advice on a couple of things…
    I’m finishing up my MSc in the state of Vermont and within the next 2 years am hoping to go to England for my Doctorate. I’m interested in purchasing a forclosure (and am currently looking at states in the North-east) as a rental income property. Because I won’t be living in the area, I want to find a property management company that will take care of rent, damage control and whatever else pops up. Is this a realistic expectation from a property management firm, and if so, what should I expect them to charge me? I’ve heard between 10 and 20 %.

    My goal with this idea is to generate a monthly income while I’m pursuing my degree, and, also to invest in something, which, in the long run will turn into profit.

    I appreciate any and all advice!

  • http://www.viproperties.com/ Vision Investment Properties

    If you really want to have an investment property, but aren’t keen on all the factors or issues that go into being a landlord, you can still do so with the help of a real estate investment firm. There are firms out there that will help income property investors find the right property, will make sure the tenants are there, will manage the property for the life of the investment, and will even assure rental income for a given period of time. This is our primary service offering and investors are discovering the real benefit of adding these income properties to their portfolios.

  • Kelly

    What is your opinion on buying rental property out of state? We live in California and would like to buy rental property in Texas. We hear Texas law is pro-landlord. Do you know if this is correct?

  • Kelly

    What is your opinion on buying rental property out of state? We live in California and would like to buy rental property in Texas. We hear Texas law is pro-landlord. Do you know if this is correct?

    • Judy Harris

      I own a property management and real estate sales company in Abilene, Texas. The market is very steady and a very good rental market. Texas laws do protect landlords. Contact me if you are serious about investing in Texas!

  • Cicten

    Angela, I am a investor and have a number of properties. You point out all the problems of which few I have ever experienced to the degree you have mentioned. I am from Austin, Texas, the market is hot and people are on a waiting list if a property becomes available. The principles are fairly simply and straight foward. Management is key, don’t spend all your profits, maintain an operating fund, keep to the contract and deal immediately with people who don’t observe the contract, maintain accurate records. Universally, rent is no less than 1% of the property value. For example a duplex costing $150K should recieve $1,500 monthly in rent. If you violate that rule, you will not stay in business very long. Now for real figures, you will be collecting about 12% per year of your investment, after taxes you will keep 10% of the value of your property. So if the property is paid for ($150K… you will have around $15K annually after taxes for investment. Here is the real kicker that is not mentioned. You depreciate the property gaining a REDUCTION IN TAXES. Any cost to maintain the rental property is DEDUCTED from your taxes. And in inflationary seasons, you could see remarkable increases in the value of your property. My cousin in California bought a house for $84K and within 8 years sold the property for $500K. This shouldn’t be expected from every property, but the gains in property value could move a $150K property into the $200K value. So Angela, you failed to really talk about why people like me invest in rental property. I hope you will give a full picure in your next article.

    • 7

      “Universally, rent is no less than 1% of the property value.” I have a million dollar, 7,000 square foot home for rent. I should be charging $10,000 a month?

      • Elle Williams

        I know this post is old, but if you indeed have a million dollar property, then that actually makes sense.

    • Landlord:)

      YOu see in Vancouver houses are minimum 500-700K but rent for one full house is about 2000-2500. So that’s what it is and still worth it for me because I had always 20% downpayment. so works out just paying for mortgage for my two houses and all the expenses then I have almost nothing left I mean for right now. But I made a lot of money already for my houses going up in value and for paying of the mortgage. I started with 80K I’m at about 300-350K now and obviously still going up and that’s 5 years. I don’t see many of my friends saving in assets or anyway additional 50k per year after taxes having regular lifestyle.

  • Davis

    I have rental property and agree with the posts below: being a landlord is as difficult as you make it. If you schedule maintenance and make repairs at the first sign of wear, there is no need to fear of emergency circumstances. When the lease is drawn up, include a $/day late fee (I charge $5 per day) and your tenants will be eager to pay on time (or early)! Also, charge first month, last month, and one month security deposit. This way if damage is done or they stop paying rent on time, start the eviction process and by the time this two months of “no rent” finishes, you have 2 months reserved because of the deposit and last month’s rent you collected up front. It also proves that they are financially stable enough to save 3+ months rent and should have a steady income to have done so. I bought my first home at 24 years old and put $10 K into the over-detached-garage apartment. I have not made a single mortgage payment since I closed on the house because my garage apartment covers the entire thing. Just turned 26 and about to buy my second property. This venture, if done properly, will retire you faster than a $1 million 401K!

    • Cristy LC

      so you bought your first home at 24 right? can you please give like an advice on how to get into this business? im 23 and i am currently saving money to buy a house but i am a little bit scare.

  • Biff

    I am a fireman and many of my coworkers are Landlords as well due to our schedule and the fact that many firemen are also handy. Every single one of them that I’ve talked to highly recommend it. They purchase the properties, paint and renovate with inexpensive materials but make the units clean and fresh looking and attract good tenants. Many of them go year(s) without having to even visit their properties. Yes, there is an occasional headache but you plan for them. I am currently saving for my first rental property and am not discouraged by this article.

  • http://www.omarbuyshouses.com/ we buy houses cash

    What I actually found from my sample
    is most of these companies aren’t cash buyers. They don’t tell you that, but
    when I looked into them I found the connections from their cash buyer website
    to their assignment wholesale offers. So what does this mean to you?

  • Mike Maurer

    This article was obviously written by somebody who knows nothing about being a landlord. $1278 for a new water heater, that is absurd! I replaced a water heater a few months ago. $329 at home depot, and if you ask for a 10% coupon at the front door they’ll usually give it to you. I paid my maintenance guy $75 to pick it up and install it, and he took the old one to the recycling center and got $10 more. If you’re not too savvy on getting things done for cheap then being a landlord isn’t for you. You have to know a few people that can do the job right and give you a fair price, which can be done through networking. I have several rental properties, and I love making money in real estate, I recommend that you do not listen to any acticles that say real estate investing is a negative thing. It’s the best thing you can do for yourself, if you think you are the kind of person that likes to make money.

    • H

      He also said it flooded the carpets and so on. Don’t forget the time of day when this happened. Sure a water heater might only be $300 but all the damage control and not to mention hotel for tenants could be way up there.

    • Nicole

      I live in San Francisco, I guarantee it would cost at least $1200 to replace in a more expensive city. I had 2 pieces of property in Arizona and I agree with everything this article says, you need to be liquid to be able to float issues. In one month my renters said the fridge stopped working. I had it repaired within 24 hours. They didn’t pay rent on the 1st and by the 3rd a relative dropped off the keys. When I got back to the house they had punched holes in 2 of the doors and one of the walls, they vandalized the back yard and a dog pulled up several 12×12 inch holes in the carpet (they didnt have a dog when they moved in 3 months prior, or the month prior when I stopped by to get rent). These tenants only lived there 3 months and it cost me well over $1000 to repair, a month lost rent from them plus a month lost rent while i fixed it back up and the fridge was $250. So yeah, in just over 1 month I lost more than $3500. It can be a gamble. I now live out of state and have a GOOD property mgmt company look after my 1 piece of property. I don’t make as much but I rest much easier at night.

      • billy smith

        Take them to small claims court take pictures you will win.Did you do a good back ground check?

    • Rafael Flamenco

      Sounds like you know your business. Question, I own six rentals now and plan on saling to 10 or 20 more. Where do I get insurance for these properties? I hear I have to go commercial now. Thanks

  • Sylwia VanLandlord

    Hi there,

    To make sure you don’t get deadbeat tenants

    What I do is making sure that they:

    – own a car. It shows they are responsible enough to make insurance payments, it shows that it will be easier for them to go to work, keep a job or find faster a new job because they don’t have to depend on accessibility; it shows they have a drive. All people without a car that I know even some of my girlfriends are deadbeats or people with bunch of issues.

    – worked at their job at least 6 months and are in good standing

    – I also ask in my rental application how much they make per month after taxes and during the reference check confirming it with their manager. Very curtail, I had full time supervisors that made 2000$ per month. How can you effort 1150$ per month from that seriously?

    – also reason for leaving the old place. If they’re complaining about the old landlord I don’t take them, you don’t need complainers and someone else’s problems but if they need a bigger place or closer to work then I consider them.

    – I also ask how long the couple was together, if they are fresh together waist of time, they will break up tomorrow and one person won’t be able to have enough money or they will need a smaller place. If they were long time than yes.

    and always make sure to check references, don’t be lazy. People lie in their applications so better do your homework now to later just be picking up the rent on the first.

    when potential tenants are interested and filling up rental application just ask them additionally “Are you sure you are able to handle the rent amount and it will be ready for me on the 1st of every month?” Make sure to execute that. Every 1st of the month whether you are tired or not, you are getting in your car and picking up the rent from your tenants. Make sure to text them a day before the 1st asking them what time they will be home tomorrow. There is no questions do you have a rent, there is only one question, what time is good for you tomorrow.
    Oh and cut down the convos with tenants to social minimum, because if you become friends they will want to slack on rent, that’s why they are so friendly but be professional and respectful. And fix stuff if they need to be fixed, ultimately you are fixing your own house only someone lives there.

    Oh and someone mentioned something about 2 months rent at the front. Good idea but there are drug dealers out there and people doing criminal activities with lots of cash, so just make sure they actually made that money legally, check job references.

  • HC

    I’m on the verge of buying my first investment property (in TX). Is it recommended to create an LLC and put the home as an asset of the LLC? Good for liability reasons?

    Also, the goal is to pay off the mortgage as quickly as possible, correct? Is it better to have a shorter loan (10yr) and try and put extra each month toward the principal… or something longer, like a 15yr+, and put extra each month?

  • Jay T. – Minneapolis, Minneso

    This article is absolute rubbish. I have had many water heaters replaced an it has never cost me more than $700 per, delivery and disposal included. I have owned rental properties for over 20 years and have only had one bad tenant (I inherited him when I purchased the property) and I have never had to evict anyone. I can count the numer of times I have had a layer than 5 days late rent payment on one hand. The key to successful landlording is keeping your property in tip top condition to be able to ask a higher than average rent and attract the best renters and screening, screening, screening prospective tenants. Meaning criminal history, credit checks to make sure they have a history of paying their bills on time, checking for any evictions, income minimum, and verifying employment and rental history. If you do that, you and your tentants will be happy. Our paid in full duplex pays for my sons college expenses, will then pay for my ddaughter’s, and will pay off our existing home mortgage in 6 more years. Run, don’t walk to buy your first rental property!

    • belaglik

      It might be that labor and disposal fees are not that high where you live. I don’t think they would be where I live either, but I think some places that kind of thing can be very expensive.

      I think you have some good points. I believe that if you are high-quality property owner, you will be more likely to attract high-quality tenants. When I was a renter, if my landlord/lady treated me well and responded to problems in a timely manner, I went out of my way to leave the place in as good or better shape than I left it. If he or she was a total a-hole like the last landlord I had before I bought my house, then I was not as motivated to make sure the dump was in pristine condition before I moved out (it was still in a lot better shape than before I moved in, though!)

      My husband is going to inherit some money and we are considering using some of it to buy rental property. We don’t want to be slumlords, though so we want to get a nice place and learn how to attract good tenants.

      Thanks for sharing your experience.

    • john playerson

      No Listen to Landlord bob. Never run to buy property. Start with something smart like he tells you. Banks do not run to finance rental property. You will need to do the jumping tricks to obtain property. The best way is to buy for personal use, and switch to renting later, via buying a new property for personal use.

      You need to be handy and have lots of tools and be willing to do your own work, not pay everyone under the sun for everything. That you can do once you have lots of property under your belt. Buy property that is run down and needs work so you get a cheap price and can ad value yourself cheaply. Easy to fix up etc , if you live in it, and tax breaks on capital gain and revalutation, whien you change from owner occupying to renting.

      Banks do no see rentals as assets, they see them as liabilities. You need to get them paid for quickly.

      • CB

        A good investor always is ready to purchase if it fits his criteria. You should run to buy rental property if it meets your criteria. For example, if you are looking for a house 20 percent under market value, less than 20 years old, and no structural repairs then you jump on that property when it becomes available. That is what good investors do because if they don’t, the house will have several competing offers within sometimes one day. I recently saw a house that came available that was less than 30 years old, in a good location, minimal repairs, 35 percent under market value, and expected cash flow was over $500 a month. I didn’t make an offer quickly and after one week called the seller to find out he already had 8 offers on the house.

        • john playerson

          Sure experienced investors can do things like this, as long as they have the cash to buy. Most looking to get into this business need to start exactly like I said. Just as no one should jump into the stock market, no one should jump into the real estate market.

          There are few and far between properties around going for undervalue, unless the whole market is down. If the whole market is down, no single property is undervalued. Some cities are still tearing down properties to protect the value of the remaining ones lol. You going to buy because you are getting them for nothing when you cant even rent them in this locals.

          Not unless you are rich and can afford to sit on vacant properties for years waiting for some kind of turn around

  • RealEstateGuru

    If you’re looking for more information on real estate and rentals check out this ebook on Amazon.. It has done wonders for me “Home Free – A guide to buying rental property”.

  • Jason A. Rodriguez

    Great Article Angela! Very informational and I can relate to some of these examples. I’m just a bit confused about insuring the property. Is their differences in state mandatory coverage and/or optional insurance like a vehicle?

  • landlord bob

    I bought my first house at age 18, it was not much of a house. But I turned it into a rental and it paid me back 10 times over. We now let a property management company handle all our rental properties. It’s 10% of the rents and none of the headache. The biggest thing I noticed by switching to a management company is that our renters are never late paying their rent. Best advice I can give is start with a house that has more than one unit. Live in one and rent the other. If you buy the right property the rental will pay your mortgage. Save all the money you can and buy your next property. Don’t waste money on stuff… buy property now and you will have stuff later. I retired at 43 from my day job and now just enjoy my sports cars and farm. Life is good and it’s owning rental property that’s made it that way.

    • Dylan Morris

      Was there any complications before you hired a management company? I know you can’t really start with a management company because your starting out; so, what issues did you come across without the company?

    • Nikola Tesla

      You’re living the dream. That is exactly what I am looking for. I make 80K a year and I am seriously thinking on buying a house in 2016. I’m planing to live in the basement and rent first and second floor. That will be enough to save extra money and buy a second property. You’re awesome.

    • tj

      Hey landlord bob!!!! Are you interested in investing in a house in Mississippi. Take a chance on me. 22k fully furnished.

    • jh1289

      The property management agency I am talking to wants 20%! Maybe I need to shop around.

      • T BRYAN

        My son rents his home out. The PMA charges 10%.

      • Xcom78

        10% is the most you should accept anything more then that is insane. If you own more then 4 properties consider trying to get less then 10% like 9 or 8%.

    • Hope Woods

      how did you turn your house into a rental? did you need a permit?

  • selvin

    hey the name is selvin and im 23years old and i was wondering what is my first step to become a real state agent. im really willing to do this because its something that i been thinking about since i was 19. if someone want to help out please email me txt me 209 495 58 81

  • ronron291

    Idk what world he living on. I guess the landlord was a vagina’ stuff don’t cost tht much… tht was big company pricing….. repairs is like a car…. if u not educated on what u are repairing ppl will get over on u. Just like a car…. 1000s or dollars to fix ur car… pleze. I never pay like tht. Only bc i educate my self on cars. Find a good repair man tht not going charge sears prices

  • Ian

    Here’s a tip: Dont rent to friends and family. Learned that after losing 16k in lost rent and damages.

  • http://www.facebook.com/brian.johnson.71404976 Brian Johnson

    Landlords deserve every bad thing that happens to them. Most renters don’t want to buy your houses for you but they are stuck in the rent trap. People should be allowed one property tax free and any additional ones should be taxed to death.

    • john playerson

      And who do you think has to pay the tax on rental property. lol. If homeowners were not taxed the burden would shift to all the other properties. This would make it worse for tenants not better, as the landlord has to recoup even more costs just to get the tax paid. Property tax is a city revenue where i live, and it funds the school system that educates our kids. Do you really want richer homeowners to enjoy a FREE LUNCH, just because your mad your poor.

    • Mark

      Commie huh

      • jh1289

        I have no respect for anyone that throws around the “commie” insult. They usually don’t even know what they’re talking about.

        • Michael Berry

          I have no respect for those who focus on that rather than on the content and point.
          Secondly, read. He said probably more of a LOSER than an entitlement-minded happy-with-all-things-in-common communist.

      • Michael Berry

        Funny how you focus on that rather than on the content and point. Secondly, read. He said probably more of a LOSER than an entitlement-minded happy-with-all-things-in-common communist.

    • Susan Boehmer

      Brian is probably more of a loser than a commie. Entitlement attitude. Gimme gimme gimme. I buy nice properties in great school districts, so people who can’t afford the housing can still get their kids a good education without living in apartments. My rentals all have community amenities, like pools and parks. I also cater towards military. They get uprooted and moved around with little notice. Them buying a home would be dumb, they could move from Texas to Alaska without notice. But rentals are a business and if YOU didn’t follow the rules, YOU LOSE. My rentals should be clearing me 100k in the next 5 to 7 years. That will pay for my kids (and their kids) to go to the college of their choice. Not Trump by any means, but not bad either.

    • Michael Berry

      “Landlords deserve every bad thing that happens to them.” Really means typical entitlement-minded, negative, disgruntled, bad tenant who thinks he knows something but doesn’t know a thing.

    • Justin Sawchuk

      why I don’t have a job but I got as hit ton of capital enough to but a few cheap apartments to rent out and make a decent income

  • jh1289

    I’m just about to buy some vacation rental property… I have a bid on a townhouse at the beach now. I have worked my entire life for “the man”, and I’m sick of it. I haven’t had a raise in 15 years (thanks, Kentucky state government), and they attack my pension every year. If I depend on my employer for my financial well-being for one more year, I will go insane, so I am taking steps to diversify my income. Now, when raise time rolls around and I get another 0% because of ant-government politicians, I can say I simply don’t care anymore, because I have other funds coming in.

    I think this is the change in life that I have been looking for.

  • Michael Berry

    I notice that there is one or two persons commenting here that says
    that this article is rubbish or that the writer is a fear-mongerer (only if you read into it and take in all the potential problems all at once). He would be among the most diligent dedicated near-perfect landlords, with a great deal of knowledge, performs his own maintenance to save $, loves it, and has rentals in the best areas with great renters. (I do appreciate a couple things he says, so I’m not making a disparaging remark.)

    For the average Joe, this business is normally complex, and one
    needs to really be on their toes and be savvy to all the ins and outs,
    to refine the lease here and there, know the laws, making sure the tenant
    understands, etc, and either put themselves all into it or have enough
    solid rentals to put them into property mgt. (Also, where I’m at the
    property management agencies want 20%. And I think it’s likely that even a property mgt company might miss a bad tenant, and the property suffer some big costs.)

    College-degreed and a contractor, I have to say that this business is NOT lucrative unless you are in the right area and you are a smart investor. Most people agree with me that gross income after ALL the overhead (the list is long, to
    include maintenance and upgrades, loans, real estate taxes, insurance, office work/equipment, time spent researching legal aspects, knowing about eviction and actually going through the process,
    revising the lease, doing inspections, and many other hidden time and costs – take a good long honest look at ALL your time) is around 50%!

    This article is not for some of the experienced landlords but for people considering doing housing providing, and it provides make-or-break tips to decide if one has the wherewithal to make it work for them. Most people appreciate what this article has to offer. I wish I had read it before plunging into the business. All in all, I believe that the responsibilities of a landlord are time consuming and difficult, not to mention costly at times.

    Trouble is that even if I make the place sparkling, do background checks, I have to make calculated risks for MY AREA and that gets me sneaky tenants (don’t have time to explain every circumstance).

    Also, some on here argue that the example costs are not what they had in their land-lording experience and the difference between if you do the work yourself (and be fair to us: your time is money, too) and hiring out. Depends on the area. And read the article: it depends on the contractor and may include damages. And, if you have property mgt, the cost will be more than if you did it yourself.

  • billy smith

    The amount for rent is high on the net must be a west coast thing.100k here in KC will get you $775 to $900 rent that can change of course.I own several rentals I never buy outside my zone of knowledge that means 5 to 15 miles from where I live, no smoking, no pets .I make my rentals look nice makes it easy to rent with a good LOCATION . I do complete background checks on each adult charge $35 cash for background check .I collect first month in person in the morning.

    .Now having said that I make sure everything is working in good manner and fix all issue very FAST!! I make sure the gutters are cleaned yard mowed this makes them hopefully have pride in the house.Fact when I bought the house I do a overhaul if the water heater is over 10 years I change it no matter what shape it is in,again I do lots of the work .

    I am thinking on raising rent to just permanently cover gutter cleaning ,mowing it is just amazing how dumpy a place gets with a trashy yard .

    For me it is location location so my house is beating inflation plus rent .You must be able to do lots of the work yourself . I do manage 2 rentals too, I think I can make money there too but not sure I want that action time will tell.I just took over a dump got it in good shape, the owner had no idea the amount of work I did lots for free just to get the gig hint never work for your brother.

  • George Lambert

    This article gives a realistic look at what it takes to be a landlord. Anyone who thinks owning rentals is a passive investment, like stocks or bonds, is in for a huge shock. Simply put … it’s a business and must be run as such.

    George Lambert
    Author, What You Must Know BEFORE Becoming a Greedy
    Landlord. How to build a portfolio of investment properties for an income that lasts a lifetime.

  • Handles

    Okay, so while the article has some valid points, MANY can be resolved or prevented quite easily.

    First of all I have to laugh… LOL! “Changing light bulbs or weeding the yard?” Get real. This is a house, you are renting a house because you want to live in a house, and not an apartment. The yard is a part of it. Make the tenant take care of the yard or put that in the lease that they pay x amount per month for you to pay someone to take care of the yard.

    And the biggest one,… Light bulbs, really? If you don’t live nearby, you’re going to drive across town (or pay someone way too much, to go and change a lightbulb? Maybe if you have a 20 ft atrium or something, maybe… But otherwise, extremely doubtful.)

    Put something in the lease that says that any “repairs” under 50 bucks the tenant takes care of themselves (i.e, light bulbs. However you should change the air filters yourself because no tenants will ever do that. Which can cause a serious reduction in the lifespan of your heating / A/C system.)

    Next point, college kids. Most college kids don’t have much if any credit. You can use this to make their parents cosign their lease. Most parents will have resistance to doing this because they don’t necessarily mind having liability for their kid, but it’s the roommates they worry about. But if you are in a college area, this isn’t that uncommon. For kids in college, most of the time, this is the first house they have lived in without their parents.

    They hardest people on a house are small children (who usually don’t know any better, and 15-21 year olds). Sure there are people that can live very hard in a house, but they are usually one-offs.

    7. Liability. Set up your rentals as an LLC that you operate under (300 bucks here in Texas). That way if you are sued they can go after the business, not you personally.

    8. Taxes. Your first year of taxes will be a bitch. As someone who has done my own taxes year after year, (before I owned rentals), you REALLY want to make sure that your first year of rental taxes is done properly. (Depreciation, expenses, etc.). Because that first year is what all previous years refer back to (for each property).

    But while being a landlord is not for everyone, and IMO has a decent startup cost compared to other part time jobs, if you can manage your money and predict volatility in your income stream in regards to vacancies and repairs, rental property is a great investment.

    Why wouldn’t you want to own something and have someone else pay for it…?

  • pumi

    It is very true that landlording is a business, not a passive investment. I now own 5 rentals

    • Gary

      How did you first start out?