So you want to be a landlord? To thine own self be true! The first gut check should be if you have the personality to own rental rent estate. Before even assessing the potential returns, purchase price, etc. you should first look at the person in the mirror. Are you going to be an active manager or will you hire a property manager? If you are going to actively manage the rental real estate you own then you need to be okay with screening tenants, collecting late rent, dealing with contractors, having tenants call you at all hours, handling tenants that are needy, evicting when needed, seeing your yard unkempt, etc. Obviously, you should aim to have none of those things come up but you need to be honest with yourself on if you would be okay if they did. Sometimes you could go years where it’s a breeze and then you will have all of the above-mentioned happened within 2 months. How will you handle a tenant that is not paying? Are you okay going to mediation or court with them, if needed?
If you are going to hire a property manager, you should really think through if you are okay being hands-off related to your rental real estate. A lot of people like real estate because it’s REAL estate. Meaning you can touch it, feel it, or at least drive by it every once in a while. Having a property manager involved may take out some of that allure. You also need to be okay paying the fees charged. Also, know what you will do if your property manager isn’t performing. What if you need to fire the property manager, would you be okay with that?
The most common situation in which I discuss these scenarios with someone is when they own a property and they are deciding whether they will sell it or rent it out. That adds a whole new layer if you lived in the property. How will you feel if someone doesn’t take care of your lawn that you worked so hard maintaining over the years? How will you react if someone damages the new bathroom you remodeled with your own hands? There is a whole new emotional element when you have lived in the property so be real about that fact when you are deciding what to do with it. Also, make sure you know the tax implications of holding it as a rental regarding capital gain taxes and depreciation recapture.
All of the above considered, only you can know if you have the personality that it takes to be an active landlord, hire a property manager, or even own rental real estate at all. If you are on the fence perhaps start with a small, inexpensive property first that you get a great deal on buying so you can sell it if it’s not for you.