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Becoming a landlord is a big decision that requires a lot of consideration. At the least one needs to know landlord/tenant ordinances, have the ability to make repairs, be able to find acceptable tenants, and make sure the property can support itself financially, and ideally make money.

Property market

When choosing a property be sure to consider the following financial aspects of the unit:

  1. Can a reasonable rental income cover the fixed costs associated with the property as well as operating expenses?
    For example, will the income cover the cost of association fees as well as taxes, insurance, vacancy, advertising, and upkeep or necessary improvements?
  2. Does the income provide a fair ROI—return on investment—for the landlord?
  3. In doing the two statements above is the needed rental rate still in line with comparable rentals?
    Just like looking at comparable properties when buying or selling property the same should be done in determining a fair rent.
  4. What is the current vacancy rate in the building?
    If you are considering buying a multi-unit building and there are no vacancies then you might be able to raise the rent. If you are buying a single unit in a building in which a lot of other investors own and there is a lot of vacancy you may have to request a lower rental rate than they are advertising.
    In either case if you do consider changing the rental rate be sure to follow consideration 3 and look to the comparables for advice.

While this is not an extensive list of everything to consider before becoming a landlord we hope it can help you get a quick sense of whether the property you like might be a good investment that should be considered more carefully.


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