What is a landlord or real estate investor
A landlord is an owner of rental property who leases it to tenants. A real estate investor is an individual who purchases property with the intention of holding it for investment purposes only. There are many similarities and differences between the two. In this blog post, we’ll explore what it means to be a landlord or real estate investor.
The Role of a Landlord
A landlord’s primary responsibility is to manage their rental property. This includes finding and screening tenants, collecting rent, maintaining the property, and dealing with any repair issues that arise. Landlords must also comply with state and local landlord-tenant laws.
Real estate investors, on the other hand, do not typically manage their properties themselves. Instead, they hire professional property managers to take care of all the day-to-day tasks involved in running a rental property.
The Benefits of Being a Landlord or Real Estate Investor
There are many benefits to being a landlord or real estate investor. First and foremost, it can be a very profitable venture. With proper management and upkeep, your rental property can provide you with a steady stream of income. Additionally, as a landlord or real estate investor, you have the potential to build wealth over time through appreciation and equity growth.
Another benefit of being a landlord or real estate investor is that you have a great deal of control over your investment. Unlike other investments, such as stocks and bonds, or putting your money in a managed index fund, you have the ability to directly impact the performance of your investment by making improvements to the property or by changing your management strategy.
The Risks of Being a Landlord or Real Estate Investor
Of course, there are also risks associated with being a landlord or real estate investor. The most significant risk is the possibility of vacancy. If your property is vacant for even just a few months out of the year, it can significantly impact your bottom line. Other risks include damage to the property (from tenants or external factors), problem tenants, and increases in operating expenses (such as repairs and maintenance).
Landlording and real estate investing can be very profitable ventures—but they’re not without risk. Before deciding whether or not to become a landlord or real estate investor, be sure to do your research so that you understand all of the potential risks and rewards involved.
How to become a landlord or real estate investor
So you want to be a landlord or real estate investor? It sounds like a great idea – Passive income? Check. Insurance against inflation? Check. Building equity? Check. But before you start buying up properties, there are a few things you should know. Here’s a helpful guide on how to get started as a landlord or real estate investor.
Research Your Area
The first step is to pick an area where you want to invest. Look at median home prices, rent prices, vacancy rates, and job growth. You want to pick an area that’s affordable, has low vacancy rates, and is experiencing job growth. This will give you the best chance of finding tenants and keeping your property rented out.
Get Financing in Place
Once you’ve picked an area, it’s time to get your financing in place. If you’re going to be a buy-and-hold investor, you’ll need either a conventional mortgage or a portfolio loan. Portfolio loans are loans designed for investors who own multiple properties. They usually have higher interest rates but relaxed lending standards, which makes them easier to qualify for.
If you’re going to flip a property, you’ll probably want a hard money loan. Hard money loans are short-term loans with higher interest rates and fees but they close quickly and have more flexible lending standards. In some cases, they will finance the property 100%, so you won’t need a down payment.
Make sure to shop around for the best loan for your situation. Your rate will depend on your credit (you can even find lenders if you have bad credit), the type of property you’re investing in, and whether you intend to live in part of the property or not. There’s A LOT more to say about financing, which we will discuss in a follow-up post.
In the meantime, it’s good to talk to lenders about how you can partner together to get your properties financed. Once a property goes under contract, you don’t have a lot of time to line up financing, so it’s best to have that sorted out before you sign the purchase agreement.
Find a Good Property Manager
If you don’t want the hassle of dealing with broken toilets and collecting rent, you can always hire a property manager. A good property manager will handle all the day-to-day tasks of being a landlord, like finding tenants, getting the lease signed, and dealing with repairs and maintenance issues.
Of course, this service comes at a cost; expect to pay 8-10% of your monthly rent in property management fees. But for the headaches you will avoid, it may be well worth it to you. Plus, property managers are also usually able to turn units more quickly and are not afraid of asking for higher rent from tenants. So, sometimes a property manager can end up saving you money if you find the right one.
Diversify Your Portfolio
Once you’ve got one property under your belt, it’s time to start thinking about diversifying your portfolio. The key here is not to put all your eggs in one basket. Spread your risk by investing in different types of properties in different areas. This way, if one investment goes sour, your other investments can help keep you afloat financially.
Once you figure out which asset class best performs for you, and that you like the best – you can stick to those investments. Some investors love small multi-family, some love short term rentals like Airbnb. You can optimize your short term rentals to get the best ROI (return on investment) – it can be a bit more stressful than long-term rentals, but also potentially more lucrative.
Some of the happiest investors invest in large multi-family real estate syndications – where they get a piece of a large real estate property or portfolio but don’t have any of the headaches of day to day operation. This is called “mailbox money” – and while it’s not without risks (no investment is), it can be a great way for an investor to dip their toes in the water before jumping in. You leave the investing to the experts, and get to come along for the ride through your investment with them.
Being a landlord or real estate investor can be a great way to earn passive income and build wealth over time. But it’s not without its risks; there’s always the chance that your property could sit vacant for months or that you could end up with problem tenants who damage your property or don’t pay rent on time. That said, if you do your homework, find worthwhile properties, and diversify your portfolio, the rewards can be well worth the risks involved.
These are just a few of the many important things to remember as a landlord or real estate investor. There is no one-size-fits-all answer, but if you keep these principles in mind, you will be on your way to success.
Erika Finn, founder of Stacking Acorns, is an attorney who graduated from law school at University of California, Berkeley. She was a member and editor of the California Law Review and won the Prosser Prize for Legal Accounting. She holds a Master’s Degree from the University of Southern California (USC) and a Bachelor’s degree from Indiana University- Bloomington. Stacking Acorns is a personal finance website for women by women. We help mid-life women achieve financial freedom through real estate investing and other streams of passive income.