Landlord, the lord of the land. This word from Middle English certainly implies wealth and power, and many billionaires made their fortune in real estate. Many more landlords found a path to financial ruin.
Landlords can get rich, but the bulk of this wealth will be on paper for many years. If managed properly, the landlord can become wealthy over a long time. However, many risks are associated with owning rental property and being a landlord. Most landlords are in the middle, and many more landlords go broke than become wealthy.
The short answer is that a landlord can get rich slowly. Over time rents increase, property values increase, and mortgages are paid off. It may take decades to realize the wealth you are accumulating, and a misstep can leave you broke. This article will discuss the most crucial steps for becoming wealthy by investing in rental houses.
Buying and managing rental houses is an investing approach that is within reach of many people. In most cases, you can use a bank loan to make it easier to purchase the property. Over time, the rents will increase, and the loan payment will stay the same. This difference gives you a monthly income, and property appreciation builds wealth.
Paying the Right Price
You make money when you buy, or so the adage goes. It’s true. The amount you pay will affect your investment result as long as you own the property. You may never profit if you spend too much, no matter how well you do with the other aspects of your rental business. On the other hand, a great deal on the purchase can offset mistakes made down the road.
How much should you pay? That is not an easy question, but there is an answer. Studies have shown that, on average, operating expenses on a rental house are about 40% of the rental income. This leaves you with 60% of the rent as your profit. But wait! If you have a mortgage, you will have to make a payment out of that 60%.
Let’s take a look at the 1% rule, which states that your rent should be 1% of the price of the house. Indeed, rents are usually about 1% of the property’s market value, but you must avoid paying market value. My years of experience have shown that the 1% rule will not work for investors. You can’t control the rent, but you can control what you pay for the property. You should never pay more than 55 times the market rent for a rental property.
It’s always nice to get extra rent, but you can only rely on getting fair market rent. You need to base all your calculations and planning on market rent which, by definition, you should be able to get. Once you have a lease at market rent, you must ensure that you collect the market rent, which is more complicated than it seems.
It is imperative that you collect the rent each month and charge appropriate late fees when it’s not paid promptly. If you let a tenant get more than one month behind, it’s usually less expensive for them to move than it is to get caught up. Paying a deposit and the first month’s rent is generally less than the two months they owe, with late fees added.
I’ve been doing this for 15 years, and I have been awarded over 100 judgments for past-due rent and have collected $0 from these judgments. It is crucial that you collect the rent when it’s due. It’s better for both the tenant and the landlord to have
The landlord’s primary responsibility is to perform maintenance and repairs, and the tenant’s primary responsibility is to pay rent. As a landlord, do your part promptly, and don’t be a slumlord. However, make sure that your tenants perform their part
Talk about making sure all this works, then time gets you rich. Maybe talk about scaling.