Advantages of Being a Landlord
If you have a piece of residential property that is not being used and you are considering selling it, you may have other options. In many situations, keeping the property for yourself and renting it out can carry a bigger benefit than selling it, so you should weigh each side carefully before deciding to sell your property. This article looks at the advantages of being a landlord.
Can You Rent Out the Property?
The first step to renting property is to check with your mortgage lender. Renting out your property without approval may be a breach of your mortgage contract. Most mortgages require a 1-4 family rider. You must also check the land use and zoning of the property to see if it allows for rentals.
Income from Rent
You need to calculate how much you can charge for renting 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 also need to be aware of the rental prices of similar properties in the same area. You should look through real estate websites, make appointments to meet landlords, and also visit the other rental units to see their condition.
You cannot count on having a stable income from your rental property for all twelve months of the year. Residential lease agreements typically last a year, and even if your house or apartment is in a high-demand area, there is still going to be transition time between tenants. This transition time could be one to two months, depending on the condition of the apartment, when the previous tenant moves out, and how quickly you can find a new tenant.
There may also be times when your rental property may stand vacant for a longer period of time. For instance, if the rental property you are trying to lease out is a luxury home, your asking price for rent will understandably be higher, which leads to a smaller base of people that may be interested in your property.
Another misconception that many people have is that not all of the rental income received is profit. You need to be sure to calculate in factors such as property taxes, mortgage payments, and whether or not you are going to include utilities in the rental price.
Acting as a Landlord
There are other issues that must be accounted for as well, such as whether or not you are going to deal with the tenants personally, or if you want to hire a property manager. You may receive a call from your tenant at inconvenient times, at night, or on holidays, for emergency repairs.
Additionally, because of the nature of rental properties and landlord responsibilities, you also have to make sure that the place is well maintained, which means additional costs if the rental property is older and needs repairs to make it habitable. Many cities, municipalities, and townships also require an inspection before any tenants can occupy the premises.
It is pretty clear that, in order to make sure you do get an income from your rental property, you will need to sit down and carefully go over the numbers. After you have figured out your total annual costs on the property and subtracted that from your projected rental income, you will find your annual profit.
If you appear to be coming out ahead by $100 to $200 a month, then you are within the industry standard. If it looks like you will be coming out behind, then you should consider raising rent, selling the property, or waiting for a better time to sell or rent at a higher price.
Tax Benefits for Owning Rental Property
In its current form, the tax code is full of laws that benefit people who rent out residential properties. One of the advantages of being a landlord is the ability to take numerous deductions, many times after ending up with a net loss from their rental income. This may sound like a bad thing but you might be able to deduct this net loss from other sources of income, like your wage income from employment.
Here is a list of some of the major tax deductions that may be available to residential landlords that do not own large numbers of properties:
- Interest: This is often the largest deduction on a landlord's taxes. This includes payments made on interest on a mortgage taken out to either buy or improve a rental property. It can also include interest on credit cards that were used in the rental business.
- Depreciation: Residential landlords can deduct the purchase price of the rental property from their taxes over a period of twenty-seven and a half years.
- Repairs: Any repairs that a landlord pays for on the rental property due to the landlord's responsibilities, such as repainting, plumbing etc., can be deducted for the tax year in which the repairs were paid for.
- Travel: Landlords can deduct travel expenses if the travel is related to their landlord responsibilities. The Internal Revenue Service (IRS) carefully reviews these deductions, so it is important to keep accurate records.
- Home Office: Landlords can deduct expenses incurred in operating a home office, provided that certain requirements are met.
This list is not exhaustive, though, so be sure to check with a tax expert to learn more about landlord tax deductions.
Landlord Investment Opportunities
One of the great advantages of being a landlord is simply being your own boss, with opportunities to grow. Many people that get started with just one rental property find themselves buying and renting out more properties, ultimately ending up as full-time real estate investors.
The independence of being your own boss and setting your own hours and goals 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.
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Get an Evaluation of Your Law-Related Landlord Concerns
When you decide to rent out a property, you're essentially starting a small business. This means you will assume certain liabilities along with the advantages of being a landlord. If faulty wiring causes a fire in one of your apartment units, you could be held financially liable for any damages. Make sure you understand your liabilities and responsibilities before getting into the business. Contact a local landlord-tenant law attorney for a legal evaluation today.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.
Contact a qualified real estate attorney to help you navigate any landlord-tenant issues.