Do you dream of buying home? Perhaps multiple investment properties from which to earn a monthly stream of income? Ah, the life…
But before you contact your real estate agent, consider what’s really involved. If you want to create an income immediately, you’ll need to rent your property. Though the proposition may sound simple, it is anything but. The information that follows details the downsides to property management.
It’s not meant to dissuade you from moving forward, but instead to show you that there are downsides as well as advantages to buying and managing rental property. Don’t let the potential to earn money cloud your vision when considering whether or not you’re cut out for it.
Issues with Becoming a Landlord or Buying Home
1. Start Up Capital
All potential landlords consider the cost of purchasing an investment property, but many overlook the costs to remodel. In other words, don’t expect start-up costs to end at the closing.
If you buy a damaged or out-of-date home, you could spend a significant amount to make it “rentable.” Any damage to the foundation, plumbing, or wiring can cost thousands of dollars to repair. But even if you buy a property in good condition, you may still have to make changes to get it up to code. This is because many states have strict requirements for rental properties that will need to be met before you start renting.
In addition to remodeling, being in compliance with these standards can significantly increase start-up costs. For example, let’s say you purchase a recently built duplex that was previously owner-occupied. Your state’s landlord and tenant laws require that you add safety features to the property before you advertise for tenants. A breakdown of the required changes is as follows:
- Handrails installed along the front and back entrance: $1,300
- Front and back doors replaced with secured, reinforced steel doorways: $300
- Peep hole installed in front door: $50
- Deadbolt entry installed on front and back doors: $50
- Standard dividing wall replaced with a fire wall: $1,600
- Completed code inspection: $35
Total Cost: $3,335
Read more about issues with Buying Home at moneycrashers.com