Alternative Investment

More Small-Time Investors Are Becoming Landlords — Here’s What They Need To Know

Because of record-high inflation and volatile markets, more high-earning professionals are buying rental properties in cheaper real estate markets, primarily in the American South. 

More services provide detailed information in any location on the real estate market’s sales prices, crime rates, schools and other key data.

Despite advanced technology, landlords need to expect the unexpected, work with the right people and consider starting small before investing in an entire home. 

Expect The Unexpected

Buying rental property has many hidden expenses like property taxes, homeowners insurance, closing costs, maintenance fees, cleaning costs and tenant vacancies. These reasons make it even more important to use a comprehensive home payment calculator before purchasing a rental property.

Many newer remote landlords, who have been dubbed “laptop landlords” also need to budget for unexpected repairs and outside factors. One of the biggest but most devastating unexpected expenses could be having poor-quality tenants or vacancies. 

These situations would leave many unsuspecting landlords on the hook for high monthly payments without rental income. Other regions, especially in the fast-growing American South, are subject to natural disasters like hurricanes, tornadoes or flooding. For example, Hurricane Harvey in 2017 damaged 135,000 homes throughout Texas and Louisiana.

Work With The Right Property Management Firm

Successful landlords know how to find and work with the right people, especially property managers. This connection is even more important since many laptop landlords won’t be based in the state where they own rental property.

The right property management company can help with repairs, managing current tenants, screening prospective ones and providing referrals to qualified contractors and plumbers. 

On average, expect to pay 8% to 12% of the gross monthly rent to a property manager. Often, these companies charge more for additional services like tenant placement, evictions and dealing with late payments.

Look for property management firms with transparent contracts, professional licenses, low vacancy rates, solid reviews and prompt customer service.

Ease Into Investing In Physical Real Estate

Even with cheap properties, owning physical real estate has many unexpected expenses and potential pitfalls.

These problems can cost new investors thousands, if not tens of thousands of dollars. However, new landlords can gradually start investing in physical property through fractional real estate platforms like Arrived Homes.

These platforms allow investors to own a fractional interest in various physical properties throughout the U.S. without having to take on any of the management responsibilities. Investors simply collect distributions from any income the properties generate and profit from any price appreciation when the properties are later sold.

Unlike publicly traded real estate investment trusts (REITs) or REIT exchange-traded funds (ETFs), fractional real estate offerings are less subject to the whims of volatile public stock markets. These offerings also provide more tax benefits like reducing taxable income via depreciation.

Laptop Landlords Are On The Rise

Laptop landlords are becoming more common because of high inflation, plunging stock markets and enhanced technology. 

But buying real estate isn’t the same as ordering groceries online with Instacart. Buying real estate comes with many responsibilities and risks and shouldn’t be taken lightly. 

Discover the latest fractional real estate insights and offerings on Benzinga Alternative Investments

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