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It’s a Good Time to Become a Landlord, Get That Passive Income Rolling In


This is a good time to change your life and buy a rental property.

Nobody is saying being a landlord is easy, what with late-night calls about bursting pipes or the police being at your house to break up a big party.

But a key part of wealth creation is creating passive income — money you earn while not actively working for it, and that’s where being a landlord can help.

The idea is simple: Buy a property, rent it to reliable tenants and let them pay down the mortgage for you until the home is paid for. At that point, the entire value of the home is yours, along with any rent you earn after the mortgage is paid off.

If you’re on the fence, know that this is a good time to become a landlord. According to Real Property Management, a Salt Lake City property management firm, the rate of U.S. home rentals has grown 31% since 2006. Homeownership rates are at 19-year lows, and stagnant incomes are leaving Americans short of the cash they need to buy, RPM says. Plus, with more rental consumers looking for space, landlords are able to charge higher rents. The average rental rate rose last year, the company says. In fact, RPM estimates the U.S. rental market to be strong throughout 2015.

“Even though the economy is improving, many families will continue to view renting homes as more financially feasible than buying in the foreseeable future,” says Robert Pifke, chief marketing officer at the company. “In the year ahead, landlords should expect the rental market to be steady as she goes.”

To get started, you’ll need cash, or at least access to cash at a reasonably low rate of interest if you’re mulling over a loan. Obviously, the more cash you can pop down on a property, the sooner you’ll make your investment back and the lower your mortgage costs will be.

You also need the mindset to “get dirty” and take on a hands-on approach to being a landlord. If you have do-it-yourself skills, you can buy that “unique fixer-upper” at a discount price, renovate it yourself and rent it out at a premium. This will take time, and yes, time really is a commodity. But you’ll need the time to whip your rental property in shape, so account for that obligation beforehand.

You’ll also need to choose good tenants. While this is no exact science, some rules apply: Make sure your rental candidate makes at least three times the income of your total monthly property rental rate. Get good references and check credit scores. If a credit score is lower than you like but you like the applicant, ask for more proof of reliable income and get more money in the down payment and security deposit.

It really does take the right stuff to be a great landlord. An entrepreneurial spirit, a hands-on, can-do approach and some good old-fashioned business savvy (along with time) are the ingredients in mastering the rental property game. And right now, it’s a game that’s paying off handsomely for the right players.

NEW YORK (MainStreet) — By Brian O’Connell

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