You have a few rental properties and some nice tenants. The income is good enough to cover your living expenses.
You know you could do even better if you devoted more time to your properties, but quitting your day job is a big decision.
How do you know if you’re ready?
Have a Financial Cushion
Even if your rental income is steady and more than enough for the mortgage payments, you want to have something in savings in case one of your tenants leaves, you have unexpected expenses, or you want to buy another property.
As with any entrepreneurial venture, most experts advise having at least six months of living expenses in savings before you quit your day job.
Besides your living expenses, you’ll need extra money for mortgage payments and utility costs for your properties.
To ensure you have everything accounted for, you should figure in a certain percentage to cover vacancies.
Some landlords base this on what percent of their current units are vacant.
Other landlords base their income on 10 or 11 months, allotting the extra months to cover repairs and vacancies.
Create a Business Plan
Before you jump into being a landlord full-time, have a business plan in place.
This allows you to know where you want to go with your business and ensures you have the financial resources you need.
Consider any improvements you want to make or any plans to purchase new rental properties.
Another benefit is that you can use your business plan to obtain financing for your investments.
Since you’re already working as a part-time property manager/landlord, a lender will take your request for financing more seriously.
Talk to the Experts
To feel confident with your decision, you may want to talk to other landlords who are already in the business full-time.
They have their fingers on the pulse of renting in your area and can tell you how the rental market and the real estate market are doing.
The real estate market is especially important if you plan to buy more properties in the near future.
Besides talking with landlords and property managers, you should also meet with a financial adviser and a lender.
Even if you aren’t ready to take the next step, it’s good to get all of these viewpoints to help you make an informed decision.
The Pros and Cons
While no one can make the decision for you, knowing the advantages and disadvantages of going into property management full-time can help you decide.
- More time to devote to your properties
- More flexibility in your schedule
- The chance to grow your business
- Investing in assets with appreciation
- More stress when relying on rental income as your sole income
- Concern about future employment if you decide being a landlord isn’t for you
- Fluctuations in the rental business and real estate impact your finances more
- Legal risks
- Dealing with issues of vacancy or bad tenants that lead to loss of income
While some of these are issues you have to deal with already, it can get worse when you have more properties.
Being a part-time landlord who makes a little extra on the side through rental income is a lot different from managing properties full-time.
Before you jump in, consider all the factors to determine if it’s the right decision for you, and if now is the right time.