When it comes to rental properties, it is a simple relationship between a landlord and a tenant. The landlord owns property and chooses to rent it out to the tenant. Most landlords have purchased their rental properties using a mortgage and they are therefore responsible for keeping up and paying the mortgage, taxes and costs of maintaining the property.
The rent amount charged will depend on all the costs pertaining to the property. The rent should therefore just be enough to cover the costs. However, the landlord may choose to charge more rent so as to make a profit; in any case wasn’t that the whole point of the investment? Charging more rent for profit isn’t necessarily a good thing in the short term as it may not be attractive to potential tenants. The most common strategy used by landlords is to hold off the profit motive and charge just enough to cover the costs and once the rent is paid off then majority of the rent will become profit.
Another way to look at rental property is on the value appreciation over time which would mean that the landlord will have a more valuable asset! So why not earn some cash on property that will potentially be worth a lot more in future?
All this may seem pretty rosy at first but there are a couple setbacks a landlord can face. The landlord could end up with a terrible tenant who damages who damages property or the risk of not getting a tenant at all! The matter of finding the right tenant would depend on finding the right property that is in an area with low vacancy rate and that is ‘rentable’.
The typical difference between a rental property and stocks, for example, is the amount of responsibility that comes with being a landlord. As a landlord you are responsible for the functioning of the rental property but if this becomes an inconvenience to you then there are very willing and able property managers who can do the job for you.
More of this on Weekly Report #25