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Escaping The Rat Race Case Study - Becoming A Landlord

By Edited Nov 13, 2013 0 0

Growing numbers of Americans are finding freedom in jobs that allow them to telecommute, opening the door to living and working anywhere in the world. Stay-at-home parents, travel aficionados, rural entrepreneurs, and expatriates have all flocked to these jobs, and while they are still relatively few, one is a job you don't need to apply for: becoming a landlord.

Being a landlord has plenty of pros and cons, not all of which are intuitively obvious. While most people dream of becoming a landlord for the passive income and freedom from having to work a traditional job, some perks that go unconsidered include:

Diversified Income & Assets: Landlords receive income from multiple sources, which reduces the risk that they will lose all of their income in a single stroke. Further, their asset portfolio includes a variety of real estate investments in addition to more traditional securities and retirement investments.

Unlimited Return on Investment: If a landlord invests $30,000 once on a rental property, that property will theoretically continue to generate revenue forever, and that revenue will rise over time as rents rise.

Tax Advantages: Landlords enjoy a variety of tax advantages and deductions, ranging from mortgage interest to hazard insurance to real estate taxes to repairs to property management costs and more. In short, almost all of the expenses associated with being a landlord are tax-deductible.

Flexibility to Live Anywhere: Most relevantly, landlords not only can work from anywhere, they don’t necessarily have to work at all. For a percentage (generally 7-10%) of rent collected, property management companies can take on your headaches for you.

That all being said, there are several risks associated with being a landlord as well, which are worth noting:

Legal Liability: Landlords are subject to complex and ever-shifting laws, both national and local, and in some cases compliance with these laws is difficult. Additionally, tenants love to sue landlords, in hope of making an easy buck, which makes landlords one of the most sued professions in America.

High Cost of Entry: Buying real estate isn't cheap. Even with a mortgage, investors must still be able to put down closing costs and a hefty down payment at the settlement table.

Unexpected Expenses: Sometimes tenants leave without warning, or the roof starts to leak and causes expensive damage. These costs can't be predicted, which means landlords must keep a lot of cash on hand to pay for these surprise expenses.

Still, for anyone who ever dreamed of having income that didn't require them to clock in at a job, becoming a landlord remains a compelling vision. Landlords can hire a property management firm to handle day-to-day landlord responsibilities, leaving the landlord free to travel, live anywhere, pursue hobbies and dreams, raise children, and otherwise live on their investments. It’s not a path that’s ideal for everyone, but for those disciplined enough to save money and actively invest, becoming a landlord can be a great escape route from the rat race.

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