Eager to become a landlord?
Want to have your real estate cake and eat it, too? Become a landlord. You can own a multi-unit property and collect rent from several tenants. Or you can buy a two- to four-unit property and live in one of the units as a landlord. Or you can vacate your single-family home and rent it out.
Pros and cons from the pros
There are pros and cons to these strategies, however. Become a landlord, and you could make good money when the real estate market is strong. But if the property needs costly repairs or you have trouble getting tenants, it could prove a bad investment.
Research all that’s involved before you choose to become a landlord. Learn if you qualify for mortgage financing for rental property. And talk to different real estate agents, lenders and other landlords to figure out if this is the right move.
Curious what the hotshots have to say about the landlord option? We’ve gathered guidance and comments from these famous financial experts.
Scott McGillivray’s advice
Scott McGillivray is host of the HGTV series Income Property. In a recent TV interview, McGillivray chimed in on becoming a landlord:
“Owning real estate beyond just your primary residence is a fantastic way to build wealth. The more properties usually the better, as long as you know what you’re doing.”
Problem is, many folks who dream about becoming landlords are afraid of what kind of tenants they’ll get.
“The truth is, typically, you’re more likely to create a bad tenant than you are to get a bad tenant,” said McGillivray. “Typically, if you know what you’re doing and if you’ve learned how be a landlord…you’ll have a proper vetting system in place.”
He said this includes things like creating a thorough tenant application. Getting proper references and doing a credit check is also important.
“If my tenants are young…I’ll get on the phone with their parents and I’ll get their parents to sign the lease as a guarantor,” he added.
Remember: “Your tenant is your customer. Treat them well. This can be a really rewarding experience,” said McGillivray.
Dave Ramsey’s advice
Popular radio host Dave Ramsey is a fan of owning rental property. But it has to be the right kind of rental property, as he suggested on his program:
“Rental property works like this: the cheaper the rent, the more of a character you’re going to deal with on average. If it’s too expensive, you also get characters because they think you work for them. A good, solid, middle-of-the-road house is a solid rental.”
Ramsey also prefers paying cash vs. borrowing to buy a rental.
“A way to get started cheap, with lower risk, is to pay cash for a little house. But it’s probably going to be a lower income situation.”
The bad news, he said, is that, “The renters are a hassle in a lot of cases.” The good news? “You will learn how to be a landlord. You’re either going to be a person who is a landlord or a person who flips properties. But either way, I would use cash.”
Sandra Rinomato’s advice
Ask Canadian real estate pro and TV host Sandra Rinomato if you should become a landlord and her answer may surprise you. She talked about this topic on her website. Her best advice is to prepare for the worst as a landlord:
“Unfortunately, with rental properties, it’s not a matter of if things go wrong; it’s a matter of when. Have contingency plans for common scenarios such as boilers quitting in the middle of winter and tenants locking themselves out of the unit. This can save you a tremendous amount of time and trouble.”
If you can afford it, she suggests hiring a trusted property manager to oversee your property.
But, “For landlords who prefer to take a hands-on approach, this means making connections with local contractors and establishing maintenance and emergency plans. Take the time to connect with local real estate agents, inspectors, and contractors. In an emergency, you’ll want to have someone who can be at the rental within a relatively short time frame.”
Ric Edelman’s advice
Renowned personal finance author Ric Edelman was asked by a landlord if he should sell his rental properties. The landlord was tired of dealing with hassles from tenants. On an episode of his video series, Edelman explained why the choice to become a landlord isn’t for everyone.
“What you’re discovering in the world of rental real estate is that you never made an investment in that real estate. You engaged in the business of real estate.”
Edelman suggested that landlords need to know what they’re getting into—and when it’s best to get out.
“As you discovered, you’re getting phone calls from tenants in the middle of the night because something’s wrong with the property. A tenant moves out and you’ve got to re-carpet, repaint the whole place. You spend months trying to find a new tenant. You discover that your current tenant isn’t paying you rent at all and you’re having trouble evicting them.”
Never forget, he added: “Owning investment real estate is a business. It is not a passive investment.”
Suze Orman’s advice
Acclaimed personal finance guru Suze Orman was once asked by a woman if she should rent out her home to her daughter. The woman planned to move out and live in another home she’d buy in another state. Here was Orman’s response:
“You’re lying to (yourself) if you don’t acknowledge the serious financial stress involved in those plans. Consider the maintenance costs alone: You’ll have to manage the upkeep of (your) house long-distance while covering the maintenance bills of your new place.”
Also, Orman continued, “do you really want to be a landlord to your daughter? When you think about her as a tenant…are you completely confident (she’ll) pay the rent on time every month?”
Orman was asked a similar question by a different homeowner. Again, she recommended a cautious approach:
“Do you think…you can attract responsible tenants who would pay enough to cover your property tax and maintenance charges? Even if you could, do you really want to be a landlord? Don’t forget you’d still have to deal with the upkeep of the home.”
Do your due diligence
Become a landlord and you could make a lot of money. That money could help you pay some or all the mortgage on your primary residence. But know that it will require a lot of hard work. Managing tenants and maintaining buildings is not easy.
Research the facts carefully. Find out if you qualify for rental property financing. Weigh the pluses and minuses of owning a rental or renting out your home. And seek guidance from local experts about your options.