Are you one of the 11 million individual landlords in the United States?
You’re certainly enjoying the perks of being a landlord. Besides the prestige that comes with being a landlord, the income you get from your rental units can be all you need to achieve financial freedom and become wealthy. And if you’re already making a substantial amount of money from your investment, you have the opportunity to travel the world and live your best life.
However, it’s not all rosy being a landlord. There are real challenges that can test your patience as a human being, and your mantle as an investor.
In this article, we’re fleshing out some of the biggest challenges landlords face, as well as what you can do prevent or solve them.
Read on to learn and earn as a landlord!
Expensive Real Estate
Real estate is a capital-intensive investment.
Let’s say you’re starting out and you want to develop and sell single-family homes. In 2021, the median cost of a house is about $260,000. So, we can assume that the developer’s cost is about $200,000.
Even if you want to start with one unit, $200K isn’t a small amount of money. The vast majority of Americans don’t have this amount in cash.
The high cost of investing in real estate is a major challenge for new landlords. If your pockets aren’t deep enough, it’s hardly possible to get started in this industry.
There’s a solution, though: loans.
If you’ve got solid credit and income history, there are lenders who will offer you investment loans and mortgages at good rates. In fact, most landlords are still paying loans on the properties they own.
There are also other funding options. For instance, you could partner up with one or more people and pool funds.
The best news is real estate investments typically pay off. Going by the example of developing and selling single-family homes, the profit you’ll make from selling a couple of units is enough to fund other developments.
If you are a seasoned landlord, you will understand that things can go wrong. Some things are less urgent than others, for example if a boiler or water pump fails it will need immediate attention to keep the tenants happy and is in some cases to prevent further damage to your property. Broken or missing roof tiles for example if left will cause water damage over time and a simple repair will turn out to be a costly fix.
As a landlord you should have insurance to cover these emergencies and the Landlord Home Emergency Cover Guide by MultiQuoteTime provides details on what is typical covered in a Landlord home emergency policy.
The Cost of Routine Maintenance and Repairs
Rental properties require a lot of routine maintenance and repairs. You have little control over the behavior of your tenants. Some will use the property irresponsibly.
Although tenants have to pay a security deposit which is used to make repairs when they leave, it might not be enough. Landlords are forced to dig deeper into their pockets and fork out the money to maintain and repair their rentals.
And, you really don’t have any option. If you slack on maintenance and repairs, your units will have high tenant turnover and vacancy rates.
Faced with rising property maintenance costs, it’s not uncommon to find landlords turning to credit facilities to raise the needed funds.
It’s true that you’ve little control of these costs, but a lot rides on the quality of the tenants you bring in (more on this shortly). High quality tenants will use your property responsibly, ensuring you don’t have to make unnecessary repairs.
There’s the issue of household pests, such as termites, which can cause structural damage to your property. A bedbug infestation will force you to spend money on treatment and control. Thankfully, a cost-effective pest control company can help you tackle the problem.
A bad tenant is a landlord’s worst nightmare.
There are several types of problem tenants.
There are the late or partial-paying tenants. These are super common. Most of the time a tenant will run late on their rent because they’re in financial trouble. However, there are those who have trouble paying rent because they misuse their finances.
There are the wrecking balls. These use your property irresponsibly. For example, such a tenant can install new kitchen cabinets, even though you don’t allow such structural installations. Others will repaint walls in the guise of making interior improvements.
There are the pet owners. Nothing wrong with this if you allow tenants to keep pets, but if you don’t, there are some problem tenants who will go ahead and violate the policy. Pets can damage your property, such as scratching the walls and even be a nuisance to neighbors (that doggo that just can’t stop barking).
There are the whiners. These ones will call you incessantly, making complaints that, if we’re being honest, are just lame.
Then there are the lawbreakers, crime birds who can’t seem to go a day without attracting a police visit. The last thing you want is law enforcement officers storming your rental establishment, especially if it’s a multi-unit property, to smoke out a lawbreaker who is your tenant.
There’s one way to attempt solving this problem: tenant screening.
Screening your tenants, including conducting credit and criminal background checks, can go a long way in helping you get high quality tenants. That being said, tenant screening is not 100 percent effective. From time to time a bad tenant will pass through the cracks and you’ll have to make do with the trouble.
As a landlord, you have legal rights. One of these rights is to evict a tenant.
However, tenants have rights too. One of these rights is the right not to be evicted – in some circumstances.
When you have a problem tenant, such as one who has defaulted on rent, it’s clear you need to get them off your property. But you just can’t go there and ask them to move out. You’ve to give them an eviction notice – and there’s a whole legal process you have to follow, including filing the documentation with a court of law.
In short, regardless of the reason for an eviction, it’s a lengthy process that wastes your time and money. Plus, a tenant can contest the eviction, which adds more time to an already lengthy process.
More often than not, you’ll have to hire a lawyer to handle the eviction for you. This is another cost you shouldn’t be bearing, but it’s the best way to ensure a successful eviction that doesn’t expose you to liability.
When Tenants Fight Back
As much as every landlord tries to handle all tenant matters in accordance with the law, nothing stops a tenant from raising a legal complaint against you. Some can sue you.
For example, in the process of tenant screening, you’re within your rights to reject a tenant application based on an applicant’s credit history. However, nothing stops this applicant from claiming you rejected their application because of their race, religion, or other factors that the Fair Housing Act prohibits.
Even if you know that you didn’t break the law, a lawsuit forces you to respond. You have to defend yourself, which means hiring a lawyer – another cost.
Being a landlord is akin to being a business owner. Your tenants are your customers. You have revenues, as well as expenses.
Even if you own one rental unit, managing your finances can be a challenge. Collecting rent takes your time and you have to make payments to your service providers, such as cleaning and security companies.
Then theirs is tax. You have to pay tax on your rental income, but there are a host of deductions you can claim. Filing taxes isn’t the easiest of tasks.
Handling finances is an easy problem to solve. You just need to hire a competent property management company, which will take over every aspect of managing your property. Your job will be to sit and wait for the money to hit your account!
Finding the Right Property Management Company
It’s an accepted fact that hiring a property management company is the one-size-fits-all solution to all the challenges of being a landlord.
However, finding the right property manager is in itself a challenge. There are thousands of property management firms in the U.S. These firms aren’t created equal. Some are very good at what they do; others, well, are just a waste of money.
The challenge can be even more pressing if you’ve multiple properties across the country. This means you might have to hire multiple companies.
Conduct extensive research when looking for a property manager. Ask for recommendations from other landlords. Read up online reviews. This way, you’ll improve your chances of finding a good property management firm.
Overcome the Challenges of Being a Landlord
Being a landlord has its benefits. It also has its fair share of challenges. We have fleshed out some of the most common challenges and what you can do to solve them. With this guide, your life as a landlord is about to get easier.
Enjoy being a landlord and keep tabs on our blog for more real estate tips and advice. We publish a variety of helpful articles on real estate investing, property management, mortgages, and home improvement.