There are numerous ways to invest in real estate. A common investing trend is landlording. Landlords are investors who purchase real estate and instead of selling it for a profit, retain the property and lease it to a tenant.
Landlording for profit makes economic sense. To begin, there will always be a high demand for homes and land. As supply and demand goes, it is reasonable to venture that a landlord could make a lot of money off individuals who, for whatever reason, don’t have a place of their own to call home. Even better, renting is a growing trend. As that trend grows, so does the potential of successfully leasing a home.
When done correctly, leasing property can pay big dividends for the investor. The lessee essentially pays for the property while the landlord retains the equity. Landlords who charge more then the property’s mortgage can either gain a profit off the excess rent or put it on the mortgage for a faster payoff. Eventually the investment will be paid off and can serve as a residual income for years to come.
As an added bonus, landlords qualify for some big tax advantages. Investors who rent their property can receive liberal tax breaks. Landlords can deduct real estate taxes and mortgage interest on their rental properties. Investors can also write off their operating expenses such as yard care, maintenance, utilities, HOA fees and insurance. Finally, residential buildings can be depreciated during a 27.5 year span, even if the property increases in value.
There are some downfalls to being a landlord. If you decide to manage your investment properties on your own, it can be very time consuming and stressful. When renters have issues with the home or property, they come to the landlord for assistance. When something breaks, the landlord is usually responsible for fixing it. For a fee, the would-be landlord can pay a management company to oversee the proprietor duties and handle troubles when they occur. Along those same lines, landlords sometimes face tough situations when their tenants don’t pay on time. This can put the investor in a bad cash flow position.
Landlords are also responsible for their tenant’s safety. There are laws regulating these responsibilities and it is important for the investor to know and understand them.
Because rental real estate usually has a mortgage attached to it, the property can tie up the investor’s personal wealth. Investment property of this nature pays off more so in the long run, after it has been paid for and continues to generate a monthly payment. Depending on the investor, landlording may not be an ideal way to pursue capital gain.
Whether or not becoming a property-owner is right for you as an investor depends on your goals. In the long run, landlording can pay off. Like all things in life, however, there are pros and cons to being a landlord. It may be that you don’t want to bother with rental properties. Either way, it is definitely something to consider.