6 Pros and 9 Cons of Becoming a Landlord

If you're thinking about buying a rental property, you need to make certain you evaluate both the pros and the cons. This type of real estate investment can definitely help you grow your net worth over time, but it's not always the right choice for everyone, and it doesn't pay off in every situation.

To help you decide whether it's right for you, here are some of the biggest advantages -- and disadvantages -- of becoming a landlord.

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When you're a landlord with a rental property, you'll have money coming in from tenants paying rent. That provides a predictable stream of funds you can use to cover the costs of your investment and, perhaps, fund other financial goals as well.

ALSO READ: 3 Unconventional Real Estate Investments That Can Generate Passive Income

Ideally, your rental property's value will increase over time, helping you grow your net worth. You could sell the property for a profit or borrow against the equity you've acquired to purchase other investments. Since you get to collect rent and your property values go up, you can make money on your rental property in two ways.

It's often possible to buy a rental property with very little money down. You should be able to get a low-interest mortgage loan to cover much of the cost. As a result, you can hopefully leverage your money effectively to earn generous returns from a small initial out-of-pocket expense.

ALSO READ: Is Commercial Real Estate a Millionaire-Maker Investing Strategy?

Having a mix of investments increases the chances that you'll build wealth over time. Adding real estate to your investment portfolio will mean you aren't reliant on the performance of the stock market alone to help you grow your net worth. And since you'll be able to build a more diverse pool of assets, you can reduce your investing risk.

Real estate investing offers many tax benefits. There are tax write-offs you can take advantage of. And you may be able to avoid capital gains taxes on profits by using techniques like a 1031 exchange. Real estate investing generally provides more tax advantages than many other investing approaches, which means you'll give up less of your profits to Uncle Sam.

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If you want to earn passive income through real estate investing, you can hire a property management company to handle the day-to-day tasks of being a landlord. That will enable you to receive income from renters regularly without spending a ton of time dealing with the minutiae of rental property ownership.

ALSO READ: Is Passive Real Estate Investing Right for You?

If you manage your properties yourself, being a landlord can be very time-consuming. In fact, it may be difficult to do if you have another job. Even if you hire a property management company, you'll still need to spend time researching properties to buy, finding a property management company you like, and monitoring their performance so that you don't end up with unhappy tenants.

If you decide to hire a property management company, you will have ongoing fees to pay, making it more difficult to earn a profit on your property. You also may have to pay your property managers even when you don't have tenants. This huge added cost could become a financial burden without rent coming in to offset it.

ALSO READ: Real Estate Investing: Is Hiring a Property Manager a Huge Waste of Money?

If your property is vacant, you still must pay your mortgage, property taxes, insurance costs, and property management fees. You'll also have utilities to pay when there's no tenant to cover them. This means you face the risk of becoming responsible for large monthly bills without any guarantee your property will generate enough income to pay them each month.

If you decide you don't want to own a rental property any longer, you can't just sell it immediately. You'll have to take time to find a buyer and hope you can locate someone willing to pay your desired price for the property. You'll also have large transaction costs to deal with. There are plenty of other, more liquid investments you could cash in more easily when needed.

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Landlord-tenant laws can be very complex, and it's your responsibility to ensure you are in full compliance with all the rules. This could involve hiring an accountant or lawyer to advise you. The rules often favor tenants' rights over landlords' rights, so you also need to be prepared to deal with legal challenges if you need to evict a problem tenant.

ALSO READ: 5 Mistakes Every New Landlord Makes

If you get a bad tenant, your property could be damaged, and you may even incur significant repair costs. You may also have to evict a tenant or deal with constant complaints from other renters if someone is causing issues. While you can screen tenants to reduce the likelihood of issues arising, there's never any guarantee that everyone you rent to will be trouble-free.

Landlords are typically responsible for handling repairs when things go wrong. This means spending both time and money to address issues. If your tenants call in the middle of the night because of a leaky pipe, you'll have to handle it or pay high fees to have someone do it for you.

ALSO READ: 5 Most Common Issues Landlords Run Into During Tenant Screenings

Maintaining your property is crucial for it to hold its value. So, you'll need to be prepared to spend the time and money to keep the home in good condition. That can reduce any profits you make and require a lot of extra effort on your part.

Although rental properties can be a good investment, there are other ways to invest in real estate that may provide a better return on investment -- especially when you figure in the cost of your time.

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After considering these pros and cons, you can hopefully make a more informed decision about whether you want to invest in rental properties. Becoming a landlord is a major commitment, so it's worth taking the time to consider both the advantages and disadvantages carefully so you don't end up making a choice you regret.

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