Being a landlord, in theory, sounds like a relatively easy gig.
You purchase a house, find someone to live in it, and collect rent.
Unfortunately, it’s not as easy as the above (which would only happen in the absolute best-case scenario).
Being a landlord comes with a ton of complications that involve your time and effort, from the start of your investment and all the way until you decide you’ve had enough and want to get out.
To begin, after you’ve purchased your home, you need to find someone to fill it- That means you have to market the home and screen your applicants. A viable solution to cut down on time spent doing these tasks is hiring a property management company, however, the expenses you’d incur might end up sneaking up on you and you’d end up spending way more than you thought in the long run.
If your property manager has to evict a tenant, you can expect that they’ll charge you a fee for handling the process. And while it isn’t necessarily a fee paid directly to your management company, they might bill you for maintenance and repairs they’ve arranged on your behalf.
Another common charge is a late payment fee; property managers often take a percentage of it as their fee for collecting it.
Another issue that landlords-gone-investors encounter is tenant turnover. Below is an example of the cost of tenant turnover:
The figures above are actually on the low end- according to the census bureau, the average mortgage on a single-family home is actually around $1500. So picture the total fees of your vacant home realistically being about $2,300.
Now consider how high that figure will be for a vacancy longer than just one month.
On top of your vacancy fees from above (which will be even more expensive if you do use a property management company), in between tenants you’ll have to re-clean and re-key the home- on the low end an E&H average setup cost is typically $400 to $500: this includes rekey and lockbox setup, a property condition report, a sales clean (which accounts for about $350 of the $400-$500), sign placement, and winterization (between October and March). We foot the bill for lockboxes, which costs us about $120 per house we set up (including labor).
This is only the average- there are instances where a trash-out is required, in which the average cost is about $581.00 for the dumpster rental, and that’s not including labor cost.
To help mitigate these costs, you may want to have a reserve/repair fund. This is a separate account that you as the landlord puts money in for necessary repairs at the property. You can choose to authorize every repair deduction from the account, can choose to only be notified for repairs over a certain dollar amount or can choose to let the property manager (if you’re employing one) use the account at their discretion. A minimum amount should be kept in this account, such as the equivalent of one month’s rent, but to be safe, the average amount you should have is about 12-15% of what you purchased the property for.
Evictions are another thing that you may have to handle as a landlord:
Again, this is a modest cost- court filing fees are typically $185.00, plus an additional $10.00 per tenant. You also have to consider that your property turnover cost is hiked depending on how much you are charging for rent.
Tired? Or better yet, are you retired?
Being a landlord is a major drawback of an investment of this nature- your investment in real estate has actually turned out to be a full time job, rather than an investment opportunity.