How Much Does it Cost to be a Landlord?
The decision to become a landlord isn’t one that happens without thorough research and careful consideration.
It’s a decision that involves both a high financial and personal investment but if you do it right, it can be rewarding for both you and your wallet.
You’re still probably wondering:
So, how much does it cost to be a landlord? More importantly, can you afford it?
Since you’re new to the process, we’ve decided to help you out! We’ve compiled a list of the 4 main costs of being a landlord:
- Start-up Capital
- Costs of Repairs
- Rent Payments
If you consider these, leave some wiggle room and decide you’re financially ready to be a landlord, pop the champagne and celebrate! On the personal note, we’ll leave the decision of if you’re personally ready to take on the responsibilities of a landlord up to you.
Let’s take a look:
Top 4 Costs to be a Landlord
1. Start-Up Capital
The initial capital required is simple and upfront, it’s the cost of purchasing your choice of property. If you’re trying to budget what this cost is, do some research.
This cost will be dependent on location, availability, size, the cost of similar properties nearby, etc. What can you afford? When you land on your magic number (plus some wiggle room).
You will also want to take into account if there will be any additional costs with that specific property. Will you need to budget for remodeling? Plumbing? Fixing foundation damages?
Lastly, you’ll want to understand if there are additional legal expenses. These expenses include ensuring the property is up to all safety standards and possible neighborhood requirements.
All these expenses roll up to be considered your start-up capital and the first step in calculating how much does it cost to be a landlord.
2. Costs of Repairs
The costs of repairs is tricky as it is both a financial and personal cost. The financial cost is the obvious, as a landlord you are the owner of the property and you will be required to handle all costs of repairs unless the tenant was otherwise responsible for the damage.
These costs can range from replacing appliances to fixing water leaks.
Important to Note:
Landlords are obligated by the landlord and tenant laws to make any and all serious repairs quickly. If the landlord fails to do so it would result in them being sued for the damages.
If your tenant calls at 2 in the morning because their toilet is overflowing, you are responsible for getting it fixed and fast.
This is the personal cost, you never know when you will be needed but you will always need to be available to help resolve any issues with the property.
You will want to budget unexpected repairs, including ones that may have a higher service cost being at inconvenient times.
When calculating how much does it cost to be a landlord, take into consideration how old the appliances are, the property structure, neighborhood safety, etc.
3. Rent Payments
Rent payments are usually associated with landlord income and one of the perks of being a landlord. But, it is also a factor you should consider as a cost when financially deciding whether or not to become a landlord.
The cost of rent payment is the “worst case scenario” but one that does happen.
Ideally your tenant will pay their agreed rent to you in full and on time but unfortunately that is not always the case.
Here’s the deal:
If your tenant fails to make their rent payment(s) you, as the landlord, become a debt collector.
If your tenant refuses to make their payments you will have to proceed with an eviction process. This will increase the cost to be a landlord. This process inconveniently takes time, money and weeks, potentially months, of unpaid rent.
You might be wondering:
What is the process? Where do the costs come in?
To begin the eviction process you will have to approach the court to secure a date for eviction; depending on the court’s schedule and other obligations this may take time.
Once the eviction date is secured, the tenant must leave by that date. If they leave any of their belongings behind, by law you cannot throw it away.
At this stage you may start incurring additional storage costs for their belongings, cleaning fees and fixing any damages left behind.
You will need to resolve all of this before allowing a new tenant to rent which may leave your property tenant (and rent payment) free for a longer period of time.
The possibility of not receiving rent in full, on-time or at all is one that can easily be overlooked but when calculating how much does it cost to be a landlord, a cost that must be considered and budgeted for.
Rental property is technically a business which means that any income you make must be reported on your annual taxes.
An unexpected expense that you may incur would be if you own the property you reside in along with a rental property your taxes will be double.
As you are researching property options, you should also research all the necessary information to understand the tax implications as it can be a large expense to consider.
That completes our list of the top 4 costs of being a landlord. Personalize these costs for your desired property and you will have a great start to answering how much does it cost to be a landlord.
So, do these 4 main cost factors fit into your budget?
If you’re like many, your answer may ultimately be no and you decide it isn’t worth the financial investment to own a rental.
If that sounds like you and you’re thinking, “I want to sell my house fast“, you’re in luck!
We here at John Medina buy houses in Los Angeles and we buy houses in orange county. So, anywhere in Southern California, we are who you should call to receive a cash offer on your home.