5 Issues with Buying a Rental Property and Becoming a Landlord

A Story by Michele Kreinheder | Updated 10/30/2015 6:42am


When you venture into the real estate business with a goal of becoming a landlord, you should know that there are plenty of difficulties you will go through. You need to be prepared for every one of them. There should be no surprises for you when a issues arise. So when you are done scouting and ready to buy, here are the five main issues you need to be prepared to deal with.

 
  1.  The Capital

You need start-up capital; that much is clear. But you may not be aware of what kind of capital you need. The amount of money you are going to need is always bigger than you anticipated. First, you will need a hefty down payment of 25% of the purchase price. You may also have to show additional reserves in your bank account. As with any real estate purchase, your first move should be talking to a trusted real estate advisor and their recommended lender. And then you have to pay the mortgage, utilities and maintenance fees until you get a tenant. That does sound a lot, right?
  1. The Repairs

After you buy the property, you have to make repairs or upgrades so that you can ask top-dollar and attract quality tenants. Depending on what city the property is located, you may also have a required inspection. The repairs should be thorough – from checking out the stability of the structure to inspecting the plumbing and electrical system, to furnishing, to calling a cleaning company to clean the mess of all the repairs. Just as when selling a house, a thorough house cleaning so that the place is made spotless and desirable, is your best investment And that is just the inside – you have to make the exterior of the house look good as well, since first impressions are important.
  1. The Tenants

Even after you get tenants, it is questionable whether they will be the good or the bad type. Will they pay their rent on time? Will they keep the quality of living the house offers? Will they be unruly or peaceful? You can never plan for tenants, and even if you interview them before renting out, they can still seem normal and sensible people, and yet give you grief at the end. This is why you should always take a security deposit sum that would pay for damages and cleaning. This is where you decide if you want to be a hands-on approach type of landlord, or hire a property manager to deal with tenants.
  1. The Security

Never let the tenants install a security system. This is your job, you are responsible for the security of your own property. In fact, it should be made extremely clear that you must approve any alterations to the property. Decide on what type of security you want – just a lock on the doors, maybe some bolts on the windows, or a full security system, and take the appropriate measures.
  1. The Wait

The most excruciating part of becoming a landlord is the initial wait. The time where the house is ready and it is being inspected and viewed, but no offers come. This is hard as you still have to pay taxes on the house, and even pay a professional cleaner to come over and house clean on a weekly or monthly basis in order to keep the place spotless for the visitors. This is the time where you need to be equipped with patience and hope, and a lot of money to maintain the house’s quality. After dealing with these issues – at least mentally – there should be no problem to break your stride on your way of becoming a great landlord. Merely endure and deal with the difficulties and eventually the good part will come, and will be profitable enough to compensate you for any trouble you might have had. Remember the value of owning rental property isn’t often a large positive cash flow on a monthly or even yearly basis. The additional value is found in tax-write offs, increased equity over a long period of time (similar to how stocks are held), and the ability to sell to a large more profitable property with the use of the best tax-relieve vehicle still available, a 1031-exchange. I have experience in both owning and selling investment property. Call me today at 562-243-2171 to schedule an appointment to discuss your plans in further detail.

Michele K

Your Trusted Real Estate Advisor
 

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