Pros & Cons of Being a Landlord You Need to Know
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Do you want to know the pros and cons of being a landlord? You’ve come to the right place.
As landlords together for the last 7 years, we have experienced the ups and downs of real estate investing.
Sometimes we kick back and think we are geniuses for living in an owner-occupied two-family house. This usually involves tax write-offs and passive income.
Other times, we have our heads in our hands, eyeballs popping, wondering, “What were we thinking?!” This usually involves plumbing or people.
If you’re considering investing in a rental property, we hope these pros and cons of being a landlord help you make an informed decision on whether it’s right for you.
Pros & Cons of Being a Landlord – The Pros
If you’ve thought about it for two minutes, you know that there are pros associated with becoming a real estate investor.
But what exactly are the benefits of owning real estate? Read on!
Income
Renting out a property creates income. If your numbers are strong, it’s a profit.
Some people call it passive income. Others call it quasi-passive income.
Once you’ve done it, you know that it’s mostly passive income. When you’re a landlord, you’re not trading time for money on the clock.
It’s great when everything is working, your tenants are paying, and you’ve got an income stream.
Real Estate Appreciates
Real estate will appreciate. By being the landlord and owner, you are reaping the benefits of increased equity!
New to this concept? Here’s an example. Let’s say you buy a house for $100k. In a few years, it might be worth $120k. You’ve now made $20k just by owning the house.
Related: What Makes a Good Real Estate Investment
Provide Goods and Services
As a landlord, you are providing essential goods and services to people who need them. THIS IS NOT A BAD THING.
Yes, there are individuals on Reddit who might have nasty things to say about the landlord population, but we are here to report that it’s 100% possible to do good in the world and receive money for it in return.
Provide a nice place to live, safe, clean, updated, and comfortable, and someone will pay you for it.
Set the Tone
When you purchase a property, you get to join the ranks of homeowners in your neighborhood.
You call the shots on what the house looks like following local law or HOA requirements. You get to help set the tone for the whole ‘hood!
Contributing to society – you can choose what rent you charge, and if you want to make it reasonable, well, there’s a tenant out there who will certainly appreciate it.
Create a Good Place to Live
A rental property also provides an opportunity to renovate. Let your inner Joanna Gaines flag fly!
We have personally enjoyed our home renovation projects (well, 99% of the time) and had a ball learning about houses in the process.
More inspiration: Before and After Home Renovations with Cost.
Enjoy Tax Write-Offs
Being a landlord comes with tax write-offs! Go directly to the source at the IRS for more information on this.
Also, get yourself a copy of “The Book on Tax Strategies for the Savvy Real Estate Investor” from Bigger Pockets. It has easy-to-understand details about tax write-offs for landlords.
Diversify Your Investments
Investing wisdom most often suggests diversity is the way to go. Diversify your stocks! Diversify your mutual funds!
Well, diversify your overall investing strategy with real estate.
This dilutes your risk across multiple platforms. It’s a good thing.
Be Your Own Boss
This is wonderfully freeing, particularly for the self-motivated.
You get to make the decisions, call the shots, and decide on working hours. Many people who are burnt out on the “full-time 9-5 W2 life” find a better balance with real estate.
Pros & Cons of Being a Landlord – The Cons
We know. Being a landlord is not all gravy. Here are some of the downsides of owning a running a rental property.
Landlords Have a Bad Rap
A quick Google of the phrase, “Is it moral to be a landlord?” offers the breadth and depth of the underlying vitriol possessed by society towards landlords.
We’re not the most popular bunch.
It’s possible to be a “good landlord” – mostly by respecting your tenant, not over-charging, and keeping up with maintenance.
However, some landlords just aren’t, shall we say, good. Much like being a professional dancer (which I once was), people make all kinds of assumptions about you and your moral compass when you say that you are a landlord.
Legal Issues
Thankfully, we have never been in legal battles due to our property, but it unfortunately happens to some property owners.
Evictions or other legal issues come with the territory – and while it will behoove you to avoid them at all costs, sometimes you just can’t.
We highly suggest you invest in a copy of NOLO’s “Every Landlord’s Legal Guide” and read it cover to cover. This is a great way to start understanding the legalities of being a landlord.
Monetary Liability
This is a big one, so listen up.
If you have a mortgage on your property, you (or your LLC or trust) are liable to pay the mortgage whether or not your tenant has paid on time.
Many investors assume the renter will always pay on time, every time, and base their business model on it. While yes, it’s probable your tenant will pay on time, that’s not always how it goes.
You need to be prepared, with cash reserves, to pay your mortgage, insurance, and property taxes every month. Calculate your deals carefully so that you don’t end up in a 2008 hot water situation.
Related: The Popular BRRRR Method + 8 Reasons We Ditched It
Renters Aren’t Reliable
Whether they offer mixed signals about lease renewals or excuses as to where the rent money is… renters aren’t always the most reliable bunch.
If you decide to become a landlord, be sure to choose your renters carefully – screening tenants is immensely important to running a successful rental.
Vacancies
It comes with the territory, and it’s possible to save cash reserves for when the time comes.
However, vacancies are a fact of life when renting out your property.
As the owner, you’ll need to be prepared to carry the costs of the mortgage (if any), plus utilities, insurance, and property taxes when your property is uninhabited.
If you are financially prepared for vacancies, it won’t be a problem.
Illiquid Investment.
Owning real estate can really increase your net worth – but unless you sell, you can’t spend the money.
Plus, while a wonderful investment opportunity, real estate comes with its ups and downs. The market can and will swing over time.
And if it’s a bad time to sell, and you need to sell, well, just watch The Big Short to remind yourself of what happens during a time like that.
It’s Your Problem
You deal with the town.
You deal with the bank.
You deal with the repairs and maintenance and bugs and toilets and snow and flooding and, and, and!
Even if you have property management, you’ll be getting calls about stuff. Like, “The house needs a new boiler, that will be $10,000 for this brand or $8,000 for this brand. Which one?”
I hope you won’t have many problems, but please know that whatever “it” is – eventually, “it’s” your problem.
Property Damage
No one is perfect. Wear and tear happens. Damage sometimes happens (looking at the under-5 population here, plus pets, college students, and disrespectful grown-ups).
No one wants to see their property damaged, but unfortunately, it’s a possibility.
Privacy
If you are living in one of your rental property units, i.e., an “owner occupant,” we know that you know that your privacy is compromised.
Unless you’ve held up a pretty savvy front, your renters probably know that you are their building owner.
This is a fine line to walk – you see your tenants, and they see you, on a regular basis. But you’re also neighbors! You have to be nice and neighborly if you want to live in peace.
This lifestyle isn’t for everybody.
Related: House Hacking Strategy – What It’s REALLY Like
Inconvenient Timing
Being a landlord can be time-consuming at the most inconvenient times.
For instance, I was nine months (yes, nine months) pregnant with our first child while we had a new tenant moving in. Talk about stress!!
But we obviously couldn’t control everything, and we had a vacancy, much to our dismay. Then, we had a tricky time finding a solid tenant during the pandemic – and in the shadow of NJ’s eviction moratorium.
It wasn’t my favorite period in our tenure as landlords, but it all worked out for the best. For the record, though, it was not fun working through turnover during my third trimester.
The heat never goes out during waking hours. The famous go-to, the toilet clog – has anyone told a horror story of that happening in the middle of the day? No. Nine times out of ten, the misery is in the middle of the night.
Being a property owner comes with its share of inconveniences. It’s a business where goods and services are “open” 24/7.
You can curb most customer requests until a more convenient time, but sometimes you just can’t.
Upfront Costs
The start-up costs of a real estate investment are plenty: buying the house, insurance, renovation costs, legal fees – the list goes on!
If you’re prepared ahead of time, it’s not a big problem, but the up-front costs on a property can be a deterrent for some people.
Uncontrollable Business Costs
Like property taxes, local rent trends, or mortgage rates in the middle of your BRRR, there will be business costs that you can’t control as a property owner.
Our property taxes have increased by 50% since we bought our home in 2016. (Why yes, we are considering a move out of here!!).
We can certainly control our rent increases (within reason) to help offset this cost, but boy would we prefer something a little less drastic!
Final Thoughts on Pros & Cons of Being a Landlord
Altogether, there are some enticing “pros” and significant “cons” of being a landlord. It’s up to you if it’s worth it!
Some folks love the autonomy, tax write-offs, and equity, while others won’t sacrifice their privacy, risk liability, or deal with the headaches.
We hope you have found these pros and cons of being a landlord useful! Go forth and invest, people!
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