Many people dream of becoming full-time landlords. It’s a great way to free yourself from the 9 to 5, and it can be a fun way to earn a living at the same time.
However, many people still don’t know how many units they require to gain independence from their regular work.
As this article explains, the number of units varies according to the income you require. However, most property owners manage to replace their regular working income (after costs) at around 5 to 10 properties.
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When Do You Become A Full-Time Landlord?
Essentially, you become full-time landlords when you have enough money coming in to support your household, don’t need to work, and still have some cash left over at the end of the month to buy new properties to expand your portfolio further.
Don’t stop your regular day job until your landlord business is generating excess returns. That is, you have enough properties to continue growing your business.
Let’s say you currently have two properties generating $600 per month after expenses and taxes. In most cases, this won’t be sufficient money to support you and your family, so you’ll need to keep working until you can generate more income streams.
Even if you have ten properties bringing in $3,000 per month, that still might not be enough to grow your business. You may need to continue working at your day job for several more years before you can switch to property management full-time.
What To Do If You’re Not A Full-Time Landlord Yet
If you’re not a full-time landlord yet but want to be one, you need a strategy. You should be able to make the transition permanently after around five years or so, even if you only have one or two properties right now.
The trick is to automate as much of the process as possible. You want your landlord’s income to have minimal overheads in terms of your time so you can focus on generating as much income as possible.
Lease Management
Quarem suggests that landlords invest in lease management. This way, you can reduce the amount of work involved in managing your tenants.
Property Managment Services
You might also want to consider full property management services. These ensure that you’re not wasting your time looking for tenants or collecting rent.
If you only have a couple of properties, keep working at your regular job. Live inexpensively and find ways to save for a deposit on your next unit. It won’t happen overnight, but it is surprising what you can achieve in ten years as landlords.
How To Become A Landlord
The best way to become a successful landlord is to specialize in buying properties in an up-and-coming area. This way, you can generate high yields and appreciation.
Yields are critical because they reflect the cash return on the capital you invest. Most landlords aim for 7 percent, though you can get significantly higher than this.
Appreciation is vital because it prevents you from falling into negative equity and increases the total value of your investments. Rising property prices mean your net worth rises, even if accessing the money takes a little effort.
To become successful, keep loan-to-value ratios as small as you can. You don’t want random void periods to make the property unsuccessful, meaning you lose it.
Remember, if nobody wants to rent, lower the price. Getting some money for a few months is better than nothing.
Avoid Low-End Areas
Try to avoid the temptation to start a rental business in ultra-low-end areas. These places tend to attract the least reliable tenants and you may need help to kick people out.
Also, don’t develop soft spots for tenants who can’t pay rent. If you are kind-hearted, always get someone else to collect rent on your behalf. Don’t let rentals slip, otherwise, it will take significantly longer for you to create a business from your activities.
Know The Laws For Landlords
If you’re looking to become a landlord, familiarizing yourself with local and federal laws is essential in order to avoid potential legal issues down the road.
Acting as a landlord comes with certain obligations; understanding the details and regulations of landlords’ rights is key to providing safe, secure housing for your tenants.
Various laws dictate how landlords should handle things like lease agreements, tenant screening processes and evictions.
Furthermore, landlords are obligated to abide by fair housing laws that provide protection against any form of discrimination among other protected classes in the US. Taking the time to learn about landlords’ responsibilities and obligations can help landlords protect themselves from lawsuits.
Conclusion of Becoming A Landlord
In summary, you need between five and ten units to become a full-time landlord. The actual number you require depends on the net profit each property generates and the level of income that makes you feel comfortable.
Think smartly about your business and adapt to changing circumstances. If you believe property prices will fall or that you might slip into negative equity, sell up as quickly as you can. Don’t wait for the market to determine your destiny. You’re asking for trouble if you do that.
Find great tenants in good locations, and incentivize the best to stay with you long-term. Prioritize professionals and people with secure government jobs.
Your Turn
Have you been a landlord or are looking to become one full time? I’d love to hear your story in the comments below.