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So You Want to Be a Landlord?


It sounds easy. You buy a piece of real estate with, of course, no money down. After all, you heard on TV at 3:00 AM that this is easy. Or maybe you’re a graduate of Trump University. Then every month, the tenants pay you rent. You pay the mortgage, and in 20 years the place is paid off and it is all equity. Of course, it’s not that easy.

First, when it comes to investment real estate, most banks want 20% to 25% down. There are ways of playing games but they are illegal.

Second, tenants do not always pay rent on time, and sometimes they stop paying entirely. In the meantime, you still have to pay the mortgage and institute eviction proceedings in court. This requires paying an attorney. And if you have the bright idea of turning off their utilities without court approval, you’ll find yourself in jail. This is known as constructive eviction.

eviction-notice

Sometimes, municipalities and states change zoning laws. This can have a major impact on the value of the property. The bank, however, does not care; they still want their monthly mortgage payment. Eminent domain also happens. This is the right of the government to seize private property with just compensation. If they take your real estate, they have to pay you, but it is often less than you would receive in a bargained for private transaction.Repairs and maintenance also have to be done in a timely fashion since over time the property will deteriorate. Unless you are handy yourself or are in the contracting business, you are going to find that this can be quite costly. Your other responsibilities include lawn cutting and snow shoveling.

Repairs and maintenance also have to be done in a timely fashion since over time the property will deteriorate. Unless you are handy yourself or are in the contracting business, you are going to find that this can be quite costly. Your other responsibilities include lawn cutting and snow shoveling.

The point is that owning rental real estate is a business that requires working capital, time, effort and management skills. As is the case with any business, it is not a passive investment like stocks or bonds. The unexpected has a way of happening and must be dealt with. So, before you decide that being a landlord is for you, consider all the risks in addition to that pot of money after 20 years.

Written by Brad Palmer

Edited and Optimized by Geoff Caplan

 


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