6 Harsh Truths to Face Before You Invest in Rental Property

Rental Property

If you have a bit of extra cash to put into real estate, you may consider investing in rental property. At first glance, it seems like a safe place to put your money. While rental properties tend to be a stable investment, there are other costs that go into being a landlord that might make you think twice about closing on a new property. Before you invest a chunk of change in a rental, consider the not so glamorous side to being a landlord.

Harsh Truth #1: You will be On-Call Day and Night

If you enjoy an uninterrupted night of sleep or the freedom to travel, expect that to change the minute your first tenant signs the lease. Whenever something goes slightly wrong, your phone will be ringing off the hook until you can resolve the issue. In cases of emergency, you could be getting this call in the wee hours of the morning. Depending on your renters, you could receive calls about anything from raccoons getting in the trash to malfunctioning plumbing. Anytime you wish to leave the area for vacation, you will have to make arrangements for someone else to be on call.

Harsh Truth #2: You will need to Become a Handyman

Unless you hire a management service to handle your property, you are responsible for repairs, renovation, and even some decoration at your property, even though you don’t live there. You may feel you have this aspect of being a landlord under control if you own a house. You see to the repairs there, and you may think it will be similar. Entrusting a rental property to tenants is an entirely different animal.

At your own home, you are on the spot and have a mental list of things that are beginning to show wear and tear and may need repairs right away. Your renters may not be so courteous as to let you know when the roof is leaking. You might not know about it until they call you after a chunk of ceiling fell in.

Harsh Truth #3: Tenant Protection Laws can be Unfair to Homeowners

When it comes to protection laws, renters are favored over landlords a majority of the time. Depending on where you live, you may not be able to even set foot on your rental property without giving your tenants a few days notice. If you need to evict them, even if it is for a good reason, the law often requires at least 30 days notice. In some states, you can not increase the rent more than a fixed percentage after a lease is signed (even if you are losing money on your property). Take a close look at your local laws before you buy a new property or go into a contract with a tenant.

Harsh Truth #4. You Might be Forced into Uncomfortable Situations

As a landlord, you will face situations that can be very tricky, and if you are not comfortable with mediation or confrontation, this may be a nightmare for you. When a tenant fails to pay rent on time, your job as a landlord suddenly turns into a debt collector. If your tenant continues not to pay the rent, you may have to go so far as evicting them. If you have formed a friendly relationship with them, this can be quite awkward.

You may also be called on in your role as landlord to settle any disputes that come up between roommates. Even if you do not wish to get put in the middle of an argument, if you are not careful, you could find yourself in the role of mediator for your tenants.

Harsh Landlord Truth #5: Your Taxes will Become Complicated

If you are like most people, you do not want to make your taxes any more complicated than they already are. When you are a landlord, this is not possible. Purchasing a second property automatically brings more paperwork and a more convoluted tax return.

Also, be aware that the income you get from your investment property could put you in a higher tax bracket and increase your overall taxes. An accountant can help you crunch the numbers on a rental property to determine it would be worth your time.

Harsh Landlord Truth #6: Real Estate Investments are Often Difficult to Liquidate

While a rental home is a comparatively safe investment, it is one that brings slow, steady returns. If you are looking for a get rich quick investment, this is not the right place to put your money. It is also an investment that is difficult to get out of at the drop of a hat. Many investments can be liquidated in a matter of days. The process of selling your property can take months. If you need to have ready access to your cash, consider an alternative investment.

Many people find being a landlord extremely rewarding — it gives them a chance to put their home improvement skills to use while adding a little extra to their bank account. You may find that you love being a landlord, but it is always best to go into it viewing the investment as a part-time job and understanding the negative aspects.

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