For many people, becoming a landlord is the foundation of their real estate business model. By owning a property and renting it out, you can make money in two ways:
- You’ll get paid consistently thanks to the cash flow that you receive in the form of rent each month. As you use this monthly cash flow to pay off the property and raise rents in tune with market increases, your profit margin grows annually.
- You earn long-term gains through the appreciation of your property’s equity over time. You realize these gains on selling the property. You can also draw on the equity you build to finance repairs, improvements and expansion of the portfolio.
Being a landlord gives you both a reasonably good cash flow and a strong investment asset. It also provides the ability to build a legacy portfolio of properties that can be passed down to your heirs with minimal tax liability.
Interestingly, landlording to profit from real estate has been around since medieval times, when actual lords owned land and collected payments from those who worked on it. In more modern times, real estate has created millionaires and billionaires throughout the world. America’s first multimillionaire, John Jacob Astor, bought gigantic pieces of land in and around New York City in the late 18th and early 19th centuries. Astor would then lease the land to developers, who would build on it. At the time of his death, he was the richest man in America, thanks to real estate investments.
Most high-level landlords treat real estate as a full-time business.
Most landlords work full time. It is possible, however, to do it part time, especially if you use a property management company to take care of day-to-day tasks at your rental properties.
You can also run your rental business from your own home, though many landlords eventually choose to set up an office for convenience.
One way to leverage your role as a landlord and build your business is to move from owning and leasing single-family homes to owning multi-family properties like duplexes, triplexes and larger buildings. This allows you to reduce your property tax and management costs while doubling, tripling or quadrupling your profitability.