What Does It Take to Be a Landlord?
Owning rental properties can be a lucrative venture, but it’s not without its challenges. Over my 13 years of experience as a landlord, I’ve found that being a landlord involves various aspects, from property acquisition and financing to ongoing management.
While some may think the toughest part is dealing with late-night plumbing emergencies, many other critical aspects require attention.
The good news is that you don’t have to handle all of these responsibilities on your own, and well-chosen rental properties can generate income to cover assistance. Additionally, they can contribute significantly to building wealth.
The Challenge of Becoming a Landlord
The difficulty of becoming a landlord depends on the tasks you decide to undertake. Landlords often vary in the amount of work they handle personally versus outsourcing. For most people, the most challenging part of becoming a landlord is finding suitable properties and securing the necessary financing. Not every property is a profitable rental, especially if you buy at retail prices and finance with investment loans.
Here are the fundamental steps to becoming a successful landlord, not merely an owner of rental properties:
- Select a Profitable Market or Property Type: Not all properties make good rentals, so choosing a market or property type with favorable rent-to-value ratios is crucial. Consider exploring multifamily or commercial rentals, which may offer better returns but might entail more management, risk, or work.
- Secure Financing: Most landlords rely on loans to purchase properties. Even with loans, you’ll typically need a down payment of at least 20 percent of the property’s value. For example, a $200,000 property may require a down payment of $50,000 or more, considering closing costs.
- Property Repair and Maintenance: Most properties require some level of repair or maintenance before they can be rented. You can either perform this work yourself or hire professionals to handle it.
- Find Tenants: Once the property is ready to rent, you’ll need to market it, screen potential tenants, create lease agreements, and collect rent. You can either manage these tasks yourself or hire a property manager.
- Ongoing Management: After securing tenants, your work is far from over. You’ll need to periodically inspect the property, address maintenance requests, and handle various tenant-related matters, including rent collection, addressing late payments, and potentially dealing with evictions. Again, landlords can choose to handle these tasks or hire a property manager.
Why Go Through All This Effort?
You might wonder why anyone would go through all this trouble to own rental properties. While a few rentals may not make you wealthy, once you acquire several properties, it becomes easier to scale your investment and grow your income and net worth. If you can accumulate ten or more rentals, you can generate substantial income and build significant wealth over time. My own rental properties have earned me millions of dollars in less than a decade, thanks to great deals, market appreciation, cash flow, and tax advantages.
Why Do Some Landlords Work Harder Than Others?
As mentioned earlier, there’s a wide range of approaches among landlords when it comes to the level of involvement in property management. Some landlords opt to do almost everything themselves, while others prefer to delegate as much work as possible. Nevertheless, there are tasks that landlords cannot avoid, and finding and financing properties is often the most challenging part of the landlord journey.
Doing tasks yourself can save money but also consumes your time and can be mentally taxing. Property maintenance and dealing with difficult tenant situations can be challenging. Many people underestimate the amount of work involved and may exit the landlord business as a result. However, despite the challenges, owning rental properties can be personally rewarding, knowing that you’re providing housing or commercial space and building wealth.
How Much Work Should an Average Landlord Expect?
In my early days as a landlord, I managed my properties with assistance from my spouse, but I never handled repairs myself. I outsourced all maintenance and remodeling work to contractors, as I was also involved in house flipping. Having existing contacts in the industry gave me a significant advantage. If I were to start fresh in a new location without industry connections, here’s what I would do:
- Property Selection: Invest time in researching and selecting the right types of properties and locations. This decision is crucial and requires substantial effort, especially for newcomers to real estate.
- Secure Financing: Obtain financing through local banks, explore alternative funding sources, and consider saving or finding partners. This stage of preparation can be time-consuming.
- Property Search: Engage a real estate agent to help find properties, but don’t rely solely on them. Actively seek out deals and focus on acquiring properties with favorable terms.
- Property Management: Before purchasing a property, plan how you’ll manage and maintain it. If you intend to use a property manager, select the right company for the job. Be patient during this process, and don’t rush into a management agreement.
- Ongoing Oversight: After acquiring a property, delegate the management tasks and maintenance but maintain oversight to ensure the hired professionals are performing their duties effectively. If the property is located far from your area, consider hiring a third party to perform periodic checks.
Scaling with rentals can involve refinancing, selling properties, or using 1031 exchanges. Landlords should regularly review their loans and property returns to maximize their portfolio’s return on investment.
Why I Opt for In-House Property Management
I advised readers to consider hiring a property manager, yet I manage my properties through my real estate brokerage, Blue Steel Real Estate. I’m not directly involved in showing properties or handling rent collection and tenant calls. I maintain an in-house property management team to handle these tasks while I focus on the big-picture aspects of property ownership.
Pursuing a career as a landlord has been exceptionally rewarding for me financially, but it’s not a path without challenges. The key to success is focusing on the right tasks. Most of the hard work for landlords should be concentrated at the outset—finding the right properties, securing financing, and understanding the market. Once you’ve got a solid foundation, entrust the property management and maintenance to qualified professionals, allowing you to concentrate on the strategic aspects of your property portfolio. With dedication and smart decision-making, being a landlord can be a fulfilling and profitable endeavor.