Becoming a landlord is the slow and steady path to wealth creation.  If a landlord sticks with it long enough and is proactive in the acquisition of rental property, there will come a time when the landlord is wealthy (at least on paper). More than any other occupation, more millionaires (and these days you really need to be a multimillionaire to be wealthy) owe their wealth to the accumulation of real estate.  One of the major components of wealth creation is the ability to make money while you sleep.

Being a landlord is not for everybody.  Learn how to sell your rental property while keeping your monthly income.

Rental properties have the potential to make money 24/7.  However, most landlords fail long before they are able to reach the wealthy stage.  Most fail because they do not understand the art of being a landlord.  They assume that it is just collecting rent checks and making bank deposits.  Any long-term, successful landlord will tell you it is about much more than just collecting the rent. To help current and future landlords reach their financial objectives, here are the top shocking ways that landlords make money!

Budget for a reserve fund

When determining rental expenses and revenues, consider repairs, vacancies and a “stuff happens” fund.  There are few guarantees in life, but one is that things break and need to be repaired or replaced.  Many landlords fail because they are underfunded and not equipped to deal with the costs.  You do not want to be one rental payment away from disaster.  There are instances like perhaps where the tenant says they will pay the rent when the water heater is fixed, and the landlord says they will fix the water heater when the rent is paid.  Guess who will win in court?  The tenant.

When things break, the landlord is responsible for fixing whether the tenant is paying the rent or not.  Generously predict expenses and conservatively anticipate income.  In addition to the initial funds to get started, assume 25 percent of rental income will go to cover vacancies and repairs.  Have at least $5000 in a “stuff happens” fund (or line of credit) per rental unit.

Seek relevant information

Join your local real estate investing group and network with other landlords. Read books on real estate investing and becoming a landlord. I like to read a variety of authors to get a diversity of opinions and perspectives. If you choose to work with a real estate agent, get one who knows about rentals most don’t. I am not an advocate of spending a lot of money on real estate gurus. I think that money is much better spent on books and networking opportunities.

Do not delay filing in court when tenant doesn't pay

It is always shocking to go to landlord tenant court and hear the amount of delinquent rents.  It is not unusual to hear amounts of $5000 and up.  A tenant who does not have $1000 in January is even less likely to have $2000 in March and $5000 in May.  But again and again, landlords wait until the missed rental payments are exorbitant before they file.  It is much easier for a tenant to make up 1 missed rental payment than five.

If a tenant has missed five rental payments it is highly unlikely they are going to be able to catch up.  If a tenant can’t afford the rent, then they need to move and taking them to court is the best way to make that happen.  Coincidentally, if a tenant were to come up with five months of rental payments, what do you think is the likelihood of them handing that money over to the landlord?  Don’t accept excuses for the rent, if you do you will get excuses instead of the rent.

Never buy or rent without a written game plan

Don't fly by the seat of your pants.  Have written procedures in place to handle situations and problems before they occur.  It is much easier to decide how you will handle a situation when you are not emotionally entangled.  When the situation occurs, just follow your written procedures.  Have a long-term vision of where you want to take your rental business.

No one accumulates 100 rentals without a written game plan.  Decide how big you want to grow, how fast, where the money will come from, your support systems and what your end game will be.

Being a landlord is an excellent and well-proven path to wealth creation.  The challenge is surviving long enough to realize the gains.  Have a written game plan, know your numbers, don’t over-spend, maintain your properties, screen tenants well, know your local laws, create a good support system and be a continuous learner.  The proper attitude, knowledge and preparation are the keys to winning at the landlord game.