12. Long Term Rentals


Just about everyone has dreamed up being a landlord at some point or another. What could be better than owning your own property (or an entire row of them) and having tenants cover the mortgage and then some each month?

Long-term rentals are in high demand and they can prove to be a lucrative investment strategy for anyone who gets in at the right price.

More: đźŹ Invest in a rental property - Tenants and cashflow included. See how!

Overview

  • Up-Front Investment: Purchasing a rental property, usually with 20% down or more.
  • On-Going Investment: Repairs, cleanup, potential liability for property damage, etc.
  • Return on investment: Potentially high. Depends on your local market and your listing. It could take some weeks before finding a tenant, but then you can lock them in for months or even years at a time.
  • Best for: Areas where housing is in high demand.

How It Works

Purchase a home and rent it out. It seems easy, right? Chances are, you have thought about the possibility of being a landlord before. After all, the idea of buying a home, finding a tenant, and then having a monthly income source from there on out is extremely tempting. Imagine if you could rack up multiple properties and double or even triple your monthly income.

There are many people who successfully live as full-time landlords, but many more who have been tempted by the idea and jumped in too soon. While being a landlord can be lucrative, it’s important that you do some thorough research before committing to a property.

First and foremost, you need to think about your local housing market. There need to be two things present in order to set yourself up for success: a house that you can attain at/below fair market price that is desirable by local renters and local renters who are going to be willing to pay your monthly mortgage and then some.

Becoming a successful landlord really boils down to the property you choose. Think about it: If the home you end up purchasing is too small or far too outdated, you'll have trouble bringing in tenants in a family-centric neighborhood. Likewise, if you choose a house that is far too extravagant or large based on the humble local needs, you'll have just as much trouble finding a long-term tenant.

You should definitely consult with some professional advisors when considering a property for long-term rental. The property you are going to consider for the purpose of a long-term rental is likely going to vary from the considerations you’d have if you were searching for a short-term/AirBnB property.

While short-term rentals are normally aimed at vacationers, long-term rentals are for people who want to stay in the area full-time. This means they need to be more affordable and offer the location and amenities to support a good life in the area. In most cases, this would mean getting further away from the water front and luxury areas and closer to the schools and shopping.

When looking for a long-term rental property, you need to think about the local demographics. This is when professional guidance can prove very helpful. Who in the area is searching for a rental property? Is it an individual, a young couple, or a whole family? What are they looking for? What’s their budget? These are questions you need to know the answer to in order to choose the right rental property.

The next step is then considering the size of the property that would be ideal for the area, its location, its yard size, how new it is, and so on.


The Pros

The biggest pro of purchasing a long-term rental property is that you'll get to benefit from a multi-month or even multi-year lease, meaning tenants will stick around for some time. This saves you the trouble of finding a new tenant every few weeks and also saves you money from cleaning up in-between tenants. Fewer tenants equals less risk and less resources spent.

Being a landlord also makes for a regular and sustainable income stream, so long as you have the upfront investment to actually buy and prepare the home.


The Cons

Many people who buy their first rental property don’t realize the amount of work a landlord has to put in just to keep tenants happy. While you may never reach out to your own landlord if you are currently in a rental situation, many tenants can turn into complete nightmares.

As a landlord, you also have to consider that you will be responsible for the upkeep of the property and repairing any damage. While the tenants will give a deposit that can be used to clean and repair things once they are gone, this deposit may not cover everything and normal “wear and tear” in the meantime is generally your responsibility.


Summary

Being a landlord is certainly a real estate investment strategy that most people will consider, but you need to do your research to ensure that the property you’re buying will actually be in mid to high demand.

You should also do your research to determine your responsibilities as a landlord and consult with a lawyer about the local laws regarding eviction periods and so on.


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With this knowledge, it can help you make an informed decision about who you want to rent to, how your contracts need to be structured, and what area you’re going to be investing into. For instance, you might would rather rent to a family (who you could reasonably suppose would have more stable income) than a fresh-out-of-school young adult who is just getting started in their career and trying to find a stable position.

As a landlord, you have the right to screen residents, but you also have the right to determine where you want your property to be located. For instance, if you choose the former, you’d likely be looking for properties near the town’s best school rather than a property in the downtown hub. Knowing who you would prefer to rent to will help you make the right decision about where the property should be located.

More: Invest in a rental property - Tenants and cashflow included. See how!