Richmond Times-Dispatch Weekend
Is Landlording Still Worth It?
What to Consider Before Investing in a Residential Rental Property
The past few years were good to many rental property owners. Tenant demand increased, as did rental rates in many markets. Many millennials chose to kick the homeownership can down the road and lease properties. Meanwhile, mortgage rates dropped, allowing landlords to purchase and refinance more affordably.
Then the pandemic happened. Suddenly, leaseholders across the nation faced hardships, with many being unable to pay their monthly rent. Governments issued moratoriums on evictions, leaving landlords little recourse and loading their ledgers with red ink.
Fortunately for them, the current federal moratorium on evictions is due to expire on
June 30 of this year. But if coronavirus numbers climb again, the Biden administration and state governments may extend this deadline. And that begs the question: Is being a landlord still worth it? Omer Reiner, a Realtor and home flipper in Fort Lauderdale, Florida, says yes.
“Although collecting rent has gotten harder, property values have also increased during the coronavirus crisis. So owning real estate and renting out property is still a good thing, so long as you can cover your mortgage independent of rental income,” explains Reiner. “The demand for rentals is also likely to increase post-pandemic once these moratoriums end and evictions and foreclosures come into play.”
Count Eugene Rendel, who recently became a firsttime landlord in Sheboygan, Wisconsin, as another true believer in rental ownership, despite current challenges.
“The long-term opportunities with real estate will always be there. No matter when you purchase property, there will be challenges that come your way. But if you see it as a long-term focus, owning rental property can be a smart business decision – especially if you are detail-oriented, can fix up a property yourself, have the money to purchase a property, and care about your tenants,” he says.
But don’t kid yourself: Landlording is hard, stressful work, and success is not guaranteed.
“The upside is that you can buy rental property and outsource the debt obligations and interest in the form of collected rent from your tenants. Each year, your rental fees can be increased while the property depreciates, yielding tax savings, and the asset depreciates due to asset values and market trends,” notes Luke Smith, a landlord, home flipper, and real estate expert in Louisville, Kentucky.
The downsides, of course, “are that you are responsible to pay back the loan you took out from the bank and you’re liable for each tenant’s safety. Your tenants will make or break the investment; if they don’t pay, you have to evict them and get the unit back in shape for another tenant to move in. Vacancies equal lost income. Your lender doesn’t care whether or not your tenant paid – they just want your mortgage paid back each month.”
Good candidates nowadays for being a landlord are folks who can stomach the ups and downs of real estate for at least five years per property.
“That’s a good amount of time to build equity and increase rents, which will allow for decent cash flow,” adds Smith. “If you are willing to take on the risk and hold an asset for that period, you’ll likely do well with the investment, provided you manage the property well so that it can retain its value.” Andrew Ragusa, CEO/broker of REMI Realty in Plainview, Long Island, New York, says his recipe for success as a landlord of multiple properties is to purchase a diamond in the rough fixer-upper, rehab it to bring up its equity value, rent it out at top dollar, refinance to pull as much equity out as possible, and repeat the process.
“Look for properties that have landlords seeking to exit the game after collecting for long periods of time already. And try to hire a good property manager, especially if you are out of state or the property is too far away,” he advises. “Having great management is key.”
Consider near-and long-term rental trends as well. “The future of renting may look different after the pandemic ends. If work-from-home trends are here to stay, demand may switch from big urban centers to suburbs and cities with a lower cost of living,” notes Reiner. “Demand for increased living space rather than shared amenities is also likely to increase. Be sure to study the housing trends in your area before purchasing any rental property today.”
Lastly, before committing to the landlord life, consider what else you could do with the money. “Real estate is hard to get out of, so think carefully about investing the money elsewhere for a decent return if you can get it. If you are committed, be sure to have enough funds to ride the ups and downs of the market as well as capital for repairs and maintenance,” Smith recommends.