Advantages of Being a Landlord
Many real estate investors understand the value of an investment property. But if you have a residential property you are not using, you can turn it into an investment property. Real estate investments can help you increase your net worth if appropriately managed. The advantages of being a landlord can help your financial position in many ways.
This Findlaw article examines the advantages of being a landlord.
Renting Out Your Property
Before you take any steps to rent out your property, you should check with your mortgage lender. Renting out your property without approval may breach your mortgage contract. Most mortgages require a 1-4 family rider. You must also check the property's local land use and zoning to see if it allows rentals.
Preparing Your Rental Property
Once you clear those hurdles, the next step is getting your rental property ready for tenants. The responsibility for upkeep and maintenance costs falls squarely on the landlord or property owner. As a rental property owner, you must maintain a habitable rental property throughout a tenancy. Depending on how many rental units you have available to rent, you should consider contracting with a property management company. Property managers can help with different aspects of the rental process.
They can conduct tenant screening to screen potential tenants and help you avoid a bad tenant; they can help with maintenance requests from renters; and they can advise you on necessary upgrades to ensure your property meets local housing code standards. They can also take care of any necessary evictions.
You need to calculate how much you can charge for rent at your property. In most situations, you need to figure out what amount of rent you need to break even and produce some income. At the same time, you should also know the local housing market conditions. You can check local real estate websites or contact agents for more information.
You can't count on having a stable income from your rental property for all 12 months of the year. Residential lease agreements typically last a year, and even if your house or apartment is in a high-demand area, you must account for transition time between tenants. This transition time could be one to two months, depending on the apartment's condition, when the previous tenant moves out, and how quickly you can find a new tenant.
Calculating Rent Charges
As you consider how much to ask for rent, be sure to calculate factors such as the following:
- Property taxes
- Mortgage payments
- Insurance premiums
- Mortgage interests
- Utilities if you decide to include utilities in the rental price.
For many property owners, rental income is passive income because once property owners set up the rental units, the rental income should flow in. Many property owners either have a rental property portfolio or can work while they collect passive income. Passive income is excellent for retirees who want a consistent cash flow without working every day.
Tax Benefits for Owning Rental Property
The U.S. tax code contains laws that benefit people renting out residential properties. One of the advantages of being a landlord is the ability to take many deductions after ending up with a net loss from their rental income. This sounds like a bad thing, but you can deduct this net loss from other sources of income, like your wage income from employment.
Major Tax Deductions
Here is a list of some of the major tax deductions available to residential landlords who don't own large numbers of properties:
- Mortgage interest: This is often the most significant deduction on a landlord's taxes. This includes payments made on interest on a mortgage to buy or improve a rental property.
- Depreciation: Residential landlords can deduct the purchase price of the rental property from their taxes over 27 and a half years.
- Repairs: Landlords can deduct repairs on the rental property due to the landlord's responsibilities, such as repainting, plumbing, etc., for the tax year they paid for the repairs.
- Travel: Landlords can deduct travel expenses related to their landlord responsibilities. The Internal Revenue Service (IRS) reviews these deductions, so keep accurate records.
- Home office: Landlords can deduct expenses incurred in operating a home office if they meet the requirements.
This list is not exhaustive and is not legal or financial advice. Consult with a tax expert to learn more about landlord tax deductions.
Other Advantages of Being A Landlord
One of the significant advantages of being a landlord is being your boss, with opportunities to grow. Many property owners who start with one rental property buy and rent out more properties, ending up as full-time real estate investors.
The independence of being your own boss and setting your own hours is a major draw for many people. Before you sell your residential property, consider being a landlord and the opportunities that may await you down that path.
- Landlord/Property Associations
- Tenant Background Screening FAQ
- Fair Housing Laws, Complaints, and Lawsuits
Get Legal Help
When you rent out a property, you're starting a small business. This means you will assume certain liabilities and the advantages of being a landlord. A real estate attorney can help you understand your liabilities and responsibilities before renting. Contact an experienced local real estate attorney for a legal evaluation today.
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