A common misconception among investment property owners is that they can make the most money if they self-manage their rental homes. While there is some truth to this, property owners need to remember that their profit may not be worth the amount of work that they put into managing their properties. Let’s learn how to make money as a landlord in the following blog.
Is self-managing a rental property really ideal?
Before you jump into the investment property business, consider these questions to determine if you have what it takes to self-manage a rental property:
#1 Do you like being hands-on?
If you’ve always taken the do-it-yourself route, such as doing yard work, construction, and light plumbing on your own, being a landlord might be for you. If this is your first time purchasing a rental property, you may not have the funds to hire outside vendors. You may likely have to do the work by yourself.
#2 Can you handle the responsibilities?
Be prepared to receive calls in the dead of the night. Issues with your rental property can happen at any moment, and as the landlord, your tenants expect you to address their concerns as soon as possible. You may find it difficult to juggle your responsibilities, especially if you have a full-time job.
#3 Do you have the connections?
If you maintain good relations with local service providers, such as electricians and plumbers, you will be in the position to negotiate a better deal. Establishing a network of trusted contractors can take time, so it’s best to start early. The faster you can count on these vendors to complete the repairs quickly and affordably, the faster you can enjoy a boost in your profit.
#4 Will you be able to charge enough rent?
In certain markets, you may not be able to impose a high enough rent to cover your day-to-day expenses. On top of that, you will have to consider your mortgage payments. Unless you manage multiple investment properties that can make up for the expenses of your other rental properties, you will not be able to generate the desired profit.
This is why it’s important to invest in a property located in the ideal location. Consider asking a property management company or real estate agent for their two cents on a specific property before finalizing the sale.
#5 How much work are you willing to put in?
You might be thinking, how do landlords make money? You won’t be able to make millions unless you put in the extra work. Only those who are willing to dedicate their time and energy to their rental properties will be able to reap the rewards of their investment.
If you truly want to generate a consistent passive income that can support your lifestyle and run a successful property rental business, then you’re going to need to put in the necessary labor. If you’re not inclined to do any of those things, you may want to hire a property management company instead.
Will you earn more money if you self-manage?
But is self-managing for everyone?
At Luxury Property Care, our clients have an average annual income of $100,000 per year. Assuming that 2,000 hours of work is spent each year, it would be safe to say that they earn around $50 every hour.
Although investment properties may be profitable, many landlords fail to realize that — despite the thousands of dollars it generates — the amount of work that they put into their properties surpasses what they’re earning.
It would make more sense to hire a professional property manager. It may be an additional expense, but it will drastically cut the amount of time spent dealing with tenants, fixing maintenance issues, collecting rent, and much more.
A property manager’s fee for single-family home management with a $1,000 monthly rental is roughly around $100 per month. When a property owner spends three hours each month managing his/her rental property, the time that he or she spends already exceeds the value of what they could have gotten from a professional. Ideally, the amount earned should be on par with the effort exerted… unfortunately, that isn’t always the case for most property investors.
As a property owner, your goal should be to ensure as much profit as possible without having to exhaust yourself. You can easily manage your single property but things get difficult when you have multiple rental properties. If you’ve found yourself struggling to manage your multiple rental properties you can hire a property manager to assist you.
How can property investors manage their earnings?
Investment property owners get to enjoy the luxury of being their own boss. But to make money, you’ll need to learn how to properly manage your finances.
#1 Get a business account
Open a business account ASAP. This account should be used specifically for rental business purposes only. This means not using its funds to pay for your coffee, buy groceries, and so on. We recommend opening a business account with a smaller bank, as they usually charge lower fees.
#2 Consider your expenses
Although your rental property may generate $20,000 each year, the amount that it brings in shouldn’t be the amount that you pay to yourself. You need to consider the expenses involved in the real estate business, such as mortgage payments, property taxes, insurance, repairs, vacancies, etc. Consult an accountant who can help with the numbers.
#3 Pay yourself
Landlords should consider following the “Profit First” model by Mike Michalowicz. Essentially, it allows landlords to divide their earnings into four categories: profit, owner’s pay, property taxes, and expenses. By allocating a specific amount for the owner each month, they can rest assured that they will always have funds for personal use.
#4 Don’t forget your tax deductions
The IRS requires every investment property owner to pay income tax. However, there are ways to lower your income tax to the point of paying zero taxes in the end. Landlords can benefit from rental property tax deductions, such as property management fees, travel expenses, advertising expenses, etc.
You got the answer on how to make money as a landlord. In fact, Managing a Florida rental property takes a lot of work. This is why it is recommended to hire a property management company that can do the work for you. It may cost you a couple of thousand dollars a year, but on the upside, you won’t have to put in the extra work anymore.
At Luxury Property Care, we have a fully trained team of property managers who are prepared to handle all aspects of property management. For more information, contact us at (561) 944 – 2992 or leave us a message by filling out our contact form.