Owning a rental property allows you to build equity in an appreciating assetwhilst creating another stream of income. It’s unsurprising then that there is an increasing number of rental properties on the market. And with technology increasingly empowering individuals it is inevitable to have a growing proportion of the market owned by small DIY landlords.
DIY (do it yourself) landlords are people who self manage their properties. There are many reasons why someone decides to do it all themselves. Not least of which is that with increasingly smart technology to support you, and a plethora of educational material online it’s never been easier to get all the resources and knowledge you need to self-manage a rental property.
Being a DIY landlord though isn’t for everyone. It comes with its own set of challenges and a steep learning curve, plus there’s a high monetary barrier and as with any investment, sizeable risks. In this article, we outline some of the key pros and cons of self-managing your rentals.
The most obvious benefit of investing in any rental property is to create an extra income stream. However, this extra income can quickly be swallowed by expenses, whether they’re maintenance expenses, legal fees, or management fees.
For example, a property management company will likely charge as much as 10% of your rental income. Plus, many charge additional fees for listing, finding and vetting tenants. What this means is that if your rental income for a property is $1,000 then you will be paying out at the very least $1,200 dollars to the property management company over the space of the year.
DIY landlords hold greater control of their purse strings and know exactly where the money is going, this helps them cut unnecessary costs to create positive cash flow properties.
There are some additional tax benefits to self-managing a property vs. allowing others to manage your rental.
If you are actively involved in the self-management of your properties - for example, you use a software like Landlord Studio - then you can deduct expenses against not only your rental income but also your personal income up to $25,000.
This is a bit of a simplification, however, for more general information you can download our e-books here.
For advice on dealing with your specific scenario and accounts, we recommend consulting with a licensed professional.
To file taxes on a rental property you will use IRS Schedule E: Supplemental Income and Loss. This schedule lets you deduct as a business expense virtually every penny that you spend on the rental property.
Common expenses include:
This is just a list of examples. As a general rule, any money you spend owning, operating and maintaining your rental property can be deducted from that property's income.
Make sure you keep excellent records for tax purposes. Landlord Studio makes this easy by helping keep all your income and expenses neatly organized and separated out by property as well as allowing you to track mileage and digitize receipts (say goodbye to that messy boxes of receipts in the corner!).
Our third and final major pro is that you have and can retain complete control over your rentals.
You are always going to care more about your property than a property management company. This is your investment, it is your asset that is at risk, and should things go wrong, it is you who is going to have to pay for it.
By retaining more control over the property you can choose the best tenants, manage your finances closely minimizing expenditures by cutting out unnecessary expenses (like property management fees) to ensure maximum profits.
Plus, as you are more involved in the day to day managing of the property you will be able to keep a closer eye on it for maintenance purposes which in the long run will likely mean you save money on major maintenance works.
We’ve outlined above the major advantages of being a DIY landlord, however, as we said at the beginning of the article being a landlord isn’t for everyone, it comes with its own set of challenges that, especially for new landlords can be problematic.
The first of these is the time that needs to go in to ensure the proper management of your rental. It will take some dedication and excellent time-management.
To help save you time and manage your properties look into software like Landlord Studio with automation features.
You can set up automated rent reminders in Landlord Studio to make sure your tenants pay rent on time and in full every month
We’ve talked about the tax benefits that DIY landlords can get. However, to receive any of these tax benefits, and to make sure you don’t get in trouble with the IRS, it’s vital that you keep tidy books. Managing your accounts though can be time-consuming and tedious.
Thankfully, once again property management software supplies the answer offering an affordable and incredibly efficient method for easily tracking income and expenses and keeping everything neatly organized. Plus, with software like Landlord Studio, you can even manage on the go.
Finding tenants can be time-consuming, and stressful, but there’s another problem. How do you determine which tenants are going to be good? And what do you do when the rent is late?
To help you we’ve collated a comprehensive tenant screening ebook that you can download for free from here:
On top of this, Landlord Studio allows you to manage and screen prospective tenants right from the app.
One of the more stressful (and expensive) parts of owning any property, whether that’s a rental or your own home, is keeping the property in good condition.
Routine maintenance tasks can add up and become major issues. This is especially true for a rental property if you’re not there all the time so you may not catch what could or should have been a small task before it becomes a big one.
Our final downside to owning a rental is the steep learning curve that comes with it. There are strict laws and regulations for landlords and it’s important you know the law and have all the proper documentation and paperwork. This can be a bit overwhelming, especially for newer landlords, however, as you grow in experience you’ll quickly become a hub of landlording knowledge and advice.
There is a lot to know when you become a landlord and inevitably you’ll make some mistakes early on. These may even be costly mistakes. However, in the long run, once you’ve learned what you need you will become a better more caring landlord than a property management company.
Thanks for reading and we hope you found this blog interesting! However, do note that the purposes of this article is for general information. We are not licensed financial or legal professionals and as such nothing in this article should be understood to be financial or legal advice. If you are in need of financial or legal assistance please seek the help of a competent professional.
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