Not 10%, not even 50%, but 90% of the world’s millionaires built their wealth by investing in real estate.
So why not take a page out of their book by investing in a property you can rent to tenants? By becoming a landlord, you can own another tangible asset and increase your income.
However, being a landlord isn’t always just rainbows and butterflies. It also has many potential drawbacks.
Below, we’ll discuss the pros and cons of being a landlord, so read on to discover if it’s right for you.
The Pros of Being a Landlord
Being a landlord requires investing in real estate, an asset that consistently appreciates. According to experts, the average appreciation rate of homes in the U.S. ranges from 3.5% to 3.8% yearly. Maintaining and improving your rental property could further boost its appreciation rate.
Your rental property investment also gives you a relatively passive income. So being a landlord is like running a business, but it requires less physical involvement. As long as your tenant is responsible, you can expect a monthly paycheck from them.
You can even become a landlord in other countries without physically being there. An example is owning property in Canada and renting it out. As a U.S. resident, you can own rental property in the Great White North without living there.
Being a landlord is also an opportunity to provide a home to those who can’t afford to buy their own.
Then, if the time comes you don’t want to become a landlord anymore, you can sell your property. Depending on how much it has appreciated, you can sell it for thousands more than what you paid for it.
The Cons of Being a Landlord
Although landlords enjoy tax breaks like rental expense deductions, rental income is taxable. So by becoming a landlord, you’ll pay rental income and property taxes. On top of that are the tax dues you may have on your primary residence.
If you rent out property outside of the U.S., you must also pay taxes there. For example, U.S. landlords in Canada may have to pay provincial transfer tax and rental property tax.
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Another added expense is landlord rental property and liability insurance. In the U.S., it can cost an average of $1,300 yearly, while it’s usually cheaper in Canada. For example, according to this landlord insurance guide, it can cost CA$1,000 in Ontario.
You must also learn about landlord and tenancy laws, which vary across U.S. states and Canada. If you don’t want to study them, you can have a property management company handle your rentals. However, that can cost you more, as you must pay the managers for their services.
If you don’t want to become a landlord anymore, you can’t just liquidate your property. It can take months to sell real estate property and convert it into cash.
Should You Become a Landlord Then?
Remember: Being a landlord requires financial resources, people skills, and managerial talents. If you have all that, it might be an excellent income-making venture. However, consider the cons as carefully as the pros so you won’t regret your decision.
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