In the current housing market, it can be increasingly difficult to find a buyer for your home. If your house just won’t seem to sell, you might be contemplating becoming a landlord. While it’s true that renting out your home can be an excellent way to make money in our slowly-recovering economy, becoming a landlord can be an exhausting full-time job.
Before you take serious steps toward becoming a landlord, you should know the hidden costs — both monetary and personal — involved.
The Hidden Costs of Becoming a Landlord
More Expensive Insurance
One cost you may not have accounted for when you planned on becoming a landlord? Increase insurance rates. Depending on your policy, it will cost more to insure your home as a rental than if you were the primary resident. On becoming a landlord, you’ll need to purchase a landlord insurance policy that can cost up to 25% more than regular homeowners insurance.
In order to attract good tenants to your rental home, when becoming a landlord you’ll need to know the amenities of other rentals in your area and then make the necessary updates to your house. Depending on the scope of your updates, you could spend anywhere from $50 to $15,000! Factor in any changes you need to make to satisfy your inspection, and your costs keep adding up.
When becoming a landlord, the responsibility of identifying and vetting tenants lies with you. This means you’ll have to pay all administrative fees associated with creating and maintaining real estate listings, interviewing applicants, checking references, and running credit histories of all prospective tenants. There are other administrative costs associated with becoming a landlord, like paying for city and state inspections and required training.
Before becoming a landlord, you’ll likely seek legal advice on drafting contracts, learning about your rights as a landlord, and understanding your tenants’ rights. These legal fees are a necessary part of becoming a landlord, as they ensure that you are conducting business correctly. In addition, you may need to evict a tenant or hire an attorney to help with a legal dispute. Both are costly realities you face upon becoming a landlord.
After becoming a landlord, you might wish that all the home maintenance would fall to someone else. Unfortunately, the upkeep of your former home will still be your responsibility. Tenants will contact you when maintenance is needed, and depending on your contract and the cause of the damage, you might be obligated to cover the costs of professional maintenance. This could include anything from repairing leaking pipes to replacing a failing HVAC system.
On becoming a landlord, you need to worry about the condition of your rental before, during, and after your tenants move out. You’ll have to spend money on cleaning the property before your next tenant views your rental and moves in. The tenants’ security deposit should cover some of the expense, but might not handle it all.
Some cities and states have tax breaks for homeowners that won’t apply to investment properties like your rental. Thus, becoming a landlord could leave you with a higher property tax burden. And even if you later put your rental home back up for sale, if you haven’t lived in it for 2 of the 5 previous years, you will lose your capital-gains tax exemption that allows you to keep $250,000 profit tax-free.
Becoming a landlord can be like taking on a full-time job. If there’s an emergency, tenants won’t hesitate to call you in the middle of the night, on the weekend, or when you’re on vacation — and you’ll have to respond promptly. Depending on your career and personal life, becoming a landlord might not be feasible for you.
Alternatives to Becoming a Landlord
If becoming a landlord doesn’t sound like the best option for you, working with experienced property managers like National Property Management Group might be your solution. At NPM we’re experts in the Kansas City real estate arena. We have the expertise to handle all aspects of your rental home so that you won’t have to take on the financial and personal hassles of becoming a landlord. Let us handle the legal hoops, administrative tasks, maintenance calls, and more!
For more on working with us instead of becoming a landlord, call National Property Management Group today at (913) 766-2302.