Being a Landlord - Is it Worth It?

Being a Landlord - Is it Worth It? (Source: pixabay.com - used as royalty free image)

Becoming a landlord is a popular, romantic idea among city dwellers, especially here in the city of Chicago. It's easy to see the appeal, after all, especially when it comes to the idea of earning so-called "passive income." Who wouldn't want to be able to rent out a space, then kick back and let the cash flow in. 

But while many of us have starry-eyed dreams of making big bucks as Chicago landlords, it's important to realize that it's not as easy as it may seem from the outside, and most landlords have to invest plenty of time, money, and effort to make a successful go at it. 

Do you have what it takes to become a landlord? Is it the right fit for your lifestyle? Here are a few key insights on what it takes...

The Intrigue of "Passive Income"

Passive income is a buzzword that intrigues many prospective investors. Essentially, people use the phrase to describe a means of deriving income from an enterprise that does not involve continuous, active involvement - sort of the opposite of your 9-to-5 job, if you will. This idea is quite often applied to being a landlord with investment property. But it's not that easy! 

But Is Being a Landlord Really All That Passive?

Is being a landlord actually a surefire path toward collecting passive income? It's an interesting question.

In an ideal situation, being a landlord will give you a route toward a relatively passive and reliable source  of income. Ideally, you'll have kind, mindful tenants who keep things clean and in good repair, and who are also happy to perform some routine household tasks, such as switching on a circuit breaker when it goes out, or replacing a lightbulb every now and then. 

Unfortunately, based on stories from our friends and peers, that ideal scenario is usually far from the norm.

In reality, being a landlord is typically anything BUT passive, and requires a good deal of flexibility with your time and with your finances. Both properties and renters are unpredictable. From time to time, you'll have to take care of some emergency replacements or repairs that could very well require you to shell out a good chunk of change - possibly as much as thousands of dollars at a time

You also never know what kinds of damage your renters will cause, or when something critical will stop working.  In our experience, the furnace only goes out on Christmas Eve, and the garbage disposal always breaks on Thanksgiving. You may well need to work nights, weekends, and holidays - and remember, this is all on top of your existing job, family, and leisure commitments, which won't suddenly go away overnight when you invest in a rental property.

Before you start the process of becoming a landlord in earnest, it's important that you ask yourself if you really have the time, energy, and money to spare to make it work. 

The Three Truths About Being a Landlord

If you're willing and able to take on the not-so-passive duties of being a landlord, there are certain things you should keep in mind:

  1. You're going to need good finances. A down payment of at least 25% is almost always required for rental properties, as banks have been increasingly tightening their standards over the past few decades. If a down payment seems like a challenge to you, keeping up with a rental property will likely be financially impossible in both the short- and long-term.
  2. You're taking a major risk. It's important to remember that rental properties don't always make money. In fact, some rental properties can cost you money. Delinquent rent payment, property damage, unexpected vacancies, legal disputes, tax issues, and other financially tricky scenarios can and do crop up all the time, turning that would-be moneymaker into a money pit. 
  3. Bad things happen to good landlords. The worst case scenarios you've heard about are most likely real world scenarios as well - and they happen even to the best, most responsive landlords. The amount of damage a tenant can leave behind is staggering. We've seen entire apartments damaged by smoke, appliances decimated by neglect, walls filled with gaping holes, insect infestations that would make you shiver... the list goes on and on. There's also the matter of your tenants themselves... You're going to have to be able to communicate with them, treating them like the customers that they are. Will you be able to handle their needs fairly and effectively, even if personal issues crop up?

The main point here? When becoming a landlord, you should hope for the best, but always be prepared to tackle the very worst.

The Bottom Line?

Before you commit to becoming a landlord for benefits alone, think it through. Play some financial situations through in your head when it comes to damaged property or reckless tenants, and be sure to do your research on insurance, income taxes, legal issues, and the many other aspects to renting out a property that most of us overlook or take for granted

Have any more questions about investing or becoming a landlord here in Chicago?  Don't hesitate to send us an email or give us a call! The Real Group team will be happy to set you on the right path to long-term success.

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