Is Renting Smart?

by : Judson Voss

Many real estate investors will think about becoming a landlord, with your own rental property, from time to time. It seems like an easy way to bring in a regular monthly income on a long-term basis. Plus, you don't have to spend a lot of time each week looking for new properties to invest in.

However, a lot of investors will caution you to avoid the tenant business. It's got a lot of drawbacks and can actually raise your blood pressure!

Holding Costs are High!
When you become a buy and hold landlord your holding costs skyrocket. Many landlords end up waiting between 3-6 months for a new tenant to move in. So in that time while they are waiting for the tenant, the landlord has to keep up the property and pay the electric, gas, and other utilities.

Re-renting Fix-up Costs are High!
As a typical landlord you also end up paying a lot to get the apartment or home ready for a new tenant when the old one moves out. This means you'll be paying to get new carpet, paint the walls and so on to make that place look good for a new renter. A deposit won't cover the costs to get that done. In any case, you aren't supposed to use the security deposit each tenant brings in, to cover the costs of regular wear and tear on the rental between tenants.

Short Leases Equal High Turnover!
A typical lease agreement between the landlord and a tenant lasts about a year. A good number of your tenants will end up moving at the end of that year instead of renewing the lease with you. Not all of them, but more than a few. This high rate of turnover increases your costs as a landlord because you'll have more holding costs between tenants and you'll have to prepare that rental for new tenants each year.

Lots of Complaints from Tenants!
A part of being the typical landlord involves getting complaints from your tenants. Most often this concerns maintenance issues. The drains get clogged, the air conditioner conks out, or the garbage disposal stops working. These are all the landlord's responsibility to maintain so the tenant has a livable home. You would have to deal with getting the tenant complaints fixed in a timely manner and absorbing the cost of fixing problems with the rental property.

The Solution!
You can own rental property after a manner by leasing out the properties instead. A lease with the option to buy the property can have many benefits. You'll be able to put the responsibility for fixing-up and maintaining the property into the hands of the lessee. Leasing property also means you can place the tenants in the property for an extended amount of time. The length of your average lease can be about 3 years or even 5 years. So, you'll have a lower rate of turn over and few holding costs on that lease property.