Have you recently become the owner of a rental property, through circumstances that are at least partially beyond your control? If so, you may be an accidental landlord. In this article, we’ll look at the benefits of owning rental property along with a few tips for mitigating potential challenges you might face. 

So, you’ve become an accidental landlord. Now what’s next?

If you’ve found yourself making the sudden transition to landlord, then you know that it can be challenging. Whether it’s because of a job relocation, an inherited property, or a rock-bottom interest rate you just can’t let go of, becoming a landlord, somewhat unintentionally, could have you wondering at times if you’ve made the right choice.

Sure, being a landlord isn’t the easiest thing in the world, but rental property can offer some exciting benefits. From cash flow to appreciation and potential tax benefits, rental properties are one investment that has a lot going for it. Many landlords find that the benefits of owning a rental far outweigh the cost. In one survey, an overwhelming 80% of rental property owners say that the stress was worth it for the money. 

If you’re an accidental landlord looking to make the most of your rental property, you’re in the right place. In this article, we’ll look at the benefits of owning rental property as well as some pitfalls that you’ll want to avoid. We’ll also uncover tips for success for landlords. 

Be sure to download your FREE guide: The Accidental Landlord’s Guide to Success, to see steps you can take for success.

What Is an Accidental Landlord?

When we think of a landlord, we often think of investors who intentionally enter rental property investments for financial rewards. They know the potential returns, conduct market analysis, and typically enter the game prepared. 

But it’s a different ball game for accidental landlords. Because of a lack of experience or preparation, accidental landlords have unique challenges or might have a longer learning curve with property management. However, even accidental landlords can still make money with rentals. The great thing about rental property is that even if you don’t have experience, you can find success. Some inexperienced landlords opt to learn as they go along, but others hire expert property managers to operate in their stead. Whichever option you choose, there’s a lot that you can do to help make your rental a successful venture.

It’s also worth noting that becoming a landlord by accident isn’t as rare as it sounds. A homeowner may suddenly become a landlord because of:

• A Job Relocation

You’ve landed a dream job in a different city or even country. Rather than rushing to sell your current home, you think about renting it out temporarily. This way, you maintain ownership while exploring your new career opportunity.

• Unexpected Life Changes

During challenging life events like a job loss, homeowners might decide to relocate or downsize quickly. Even for happy events, such as expanding your family, a one-bedroom home might become too tight, necessitating a move. Renting out existing property instead of selling becomes a viable solution to avoid financial strain or selling during a less-than-ideal market.

• Aging Parents

As parents age and require specialized care, adult children may need to make tough decisions about their parents’ property. Instead of selling the family home outright, they might choose to rent it out to earn extra income to support their parents’ care. While there may be some time to prepare, these changes can often come on quickly or even unexpectedly at times. 

• Inheritance

Inheriting a home gives you access to a cash-flowing asset. However, it can also come with challenges. Some beneficiaries may already own a home or don’t intend to live in the area. Becoming a landlord could be an ideal solution, especially if the inherited property is in a desirable rental market.

• Low Mortgage Rates

The economic crisis of 2008 and 2020 plunged mortgage rates into historical lows. Many Americans became homeowners but changed their minds about homeownership or the neighborhood the property was in; that once-in-a-lifetime mortgage rate is too good to give up, so they choose to hold on to it. These golden handcuffs can turn into golden opportunities.

Learn more about golden handcuff opportunities in this article, Low Mortgage Rates: Golden Handcuffs or Golden Opportunity?

The Advantages of Owning Rental Property

1. Renting Out a Home Could Be Your Ticket to Financial Freedom

Renting out a property while renting a place yourself can be a savvy financial move. If that property has a low mortgage rate, renting it out may allow you to generate rental income. Meanwhile, you’re free to rent a place that suits your current lifestyle and needs. This strategy can boost your overall financial picture and help you achieve long-term goals like saving for retirement or investing in other opportunities.

2. Property Appreciation to Counter Inflation

Inflation may be cooling, down to 3.2% this year from 9.1% in 2022, but food prices are still rising and denting budgets across America. Property appreciation can potentially be a powerful hedge against rising prices. According to historical data, real estate has consistently outpaced inflation, with average annual home price appreciation ranging from 3% to 5%. Holding onto your property doesn’t just work towards preserving wealth; you may even be able to use that asset to help you grow it.

3. Extra Income Stream

Who doesn’t love the sound of extra cash flowing into their bank account? Financial adviser Jeff Rose tells Nasdaq that having multiple income streams is essential. 

“By doing so, you won’t have to worry about losing one income stream if another one runs out. It is easier to pay off debt, save for retirement, and build wealth when you have multiple income streams,” Rose says.

Whether saving up for a dream vacation or investing for the future, rental income can boost your cash flow. Even better, rental income becomes pure profit once the mortgage is paid off.

4. Tax Benefits

It’s time to dive into everyone’s favorite topic: taxes. Renting out a property comes with tax deductions that can help reduce your taxable income and increase cash flow. Landlords may deduct expenses such as mortgage interest, property taxes, insurance, maintenance costs, and depreciation. When tax time comes around, these savings can potentially help to put more money back in your pocket.

5. Flexibility

Turning your home into a rental property can give you flexibility. Renting out a property gives you flexibility and control over your housing situation. You can always move back in or sell it once you’ve met your financial goals. You’ll have the freedom to choose where you live and how you invest in your future, giving you peace of mind and adaptability, which are priceless.

6. Financial Freedom

Finally, owning rental property can help you on your journey to financial freedom. With a clear strategy, the right approach, and the right property, you can start growing your wealth. Learn more about rental property and financial freedom.

The Challenges of Being an Accidental Landlord

1. Steep Learning Curve

There will be a lot to wrap your head around, and you must learn fast. From understanding landlord-tenant laws, mastering property maintenance, learning how to screen tenants, and more, there’s a whole new world of knowledge to absorb and skills to develop. It can be overwhelming and time-consuming on your own.

2. Lack of Expertise

From rent collector to maintenance troubleshooter, landlords will be called to jump into many roles. It can be exciting to try and solve problems on your own initially. But if your efforts don’t always get the desired results, you might feel like you’re just not cut out for the job and think about giving up.

Hack the learning curve and hire a property manager instead. Read: When Does It Make Sense to Outsource Property Management?

3. Financial Risks

Like any investment, renting out a property has financial risks. Even the best landlords can’t prevent vacancies or unexpected maintenance costs. Accidental landlords may find themselves unprepared to handle these challenges, especially if they haven’t set aside reserves for these situations.

4. Not Enough Time

Managing a rental property isn’t a set-it-and-forget-it kind of venture. It requires time, effort, and attention to detail. Accidental landlords may underestimate the time and energy needed to effectively manage their property, especially if they have other personal or professional commitments. Without proper time management or support, the demands of being a landlord may overwhelm them.

5. Legal and Compliance Risks

It’s important to have a good understanding of landlord-tenant laws, including fair housing regulations, before renting out your property. Getting up to speed on legislation impacting landlords can be challenging, but it’s vitally important as landlord-tenant laws impact everything from security deposits, rent increases, evictions, and more.

Accidental Landlord Tips for Success

1. Learn As Much As You Can

The more you know, the better equipped you’ll be to handle your new role as a landlord. Learn the ins and outs of property management, from legal best practices to maintenance and tenant relations. The good news is that there are many free resources, such as the Renters Warehouse Education Center, where you can find expert tips on investing and property management advice.

The U.S. Department of Housing and Urban Development (HUD) and National Association of REALTORS® (NAR) are also great websites for learning. Surrounding yourself with other landlords, accidental or not, is also a great way to learn the ropes of property management. 

2. Stay Compliant With Landlord-Tenant Laws

Don’t feel constricted by landlord-tenant laws because they also protect your rights as a landlord as much as the tenant. Familiarize yourself with fair housing regulations and property requirements. Consult resources such as state landlord-tenant guides or websites like Nolo for up-to-date information on your rights and responsibilities as a landlord, but remember that online resources are not a substitute for professional legal counsel.

3. Talk to Professionals Before You Start

Schedule consultations with lawyers who specialize in landlord-tenant law, accountants familiar with rental property tax implications, and real estate specialists and property management companies who can offer insights into market trends and property valuation. These professionals can give guidance tailored to your specific situation and help you spot potential pitfalls before they become costly mistakes. 

4. Set a Realistic Budget 

A solid financial plan will help to set you up for success. To create a comprehensive rental budget, factor in expenses like mortgage payments, property taxes, insurance, maintenance costs, and vacancy rates. Be realistic about your expected rental income and cash flow projections. Take into account market conditions, potential fluctuations, and rental demand. 

5. Find a Qualified Tenant

One secret to finding success as a landlord is finding responsible tenants. Establish clear tenant criteria and stick to them consistently to minimize the risk of late payments, property damage, or eviction proceedings. However, don’t forget to check local laws and the Fair Housing Act to ensure fair tenant screening.

Take the guesswork out of this important process with Renters Warehouse Tenant Placement Services.

6. Don’t Underestimate the Workload

One big mistake rookie landlords make is thinking that it’s easy being a landlord. You must be prepared to roll up your sleeves and invest the necessary time and energy into your duties. But when the going gets tough, enlisting a little help sometimes pays off. 

For long-distance landlords, a local property manager may not be just convenient, but even necessary. Consider partnering with a reputable rental management company to handle the day-to-day property management tasks on your behalf. From tenant screening and rent collection to maintenance and emergency response, rental management companies can take the stress off your shoulders and provide peace of mind.

Final Takeaways:

Not all property management companies are the same, so research and vet potential property management companies before handing over the keys to your investment. A company with a track record of professionalism, reliability, and transparency will bring a lot to the table, saving you time while allowing you ensure that your property is managed to a high standard.

At the end of the day, remember, even the most seasoned pros had to start somewhere, so don’t let your lack of experience and your circumstances hold you back. Arm yourself with the proper knowledge and don’t forget that with guidance and help from some professionals, you can turn your accidental rental into a tool for financial freedom.Being a landlord doesn’t have to be stressful. Consider enlisting a Renters Warehouse Property Manager and outsource day-to-day property management tasks, including tenant sourcing and screening, rent collection, lease enforcement, and more. Start today with a FREE rental price analysis.