Benefits of Owning a property & becoming a Landlord

A landlord is owner of a property who rents or leases land or a building to another party. Becoming a landlord can be a profitable venture because it can provide a steady income while the property (ideally) appreciates in value. In addition, you may be able to  enjoy tax benefits. Because of the time and money involved in purchasing, maintaining and renting property, however, the decision to become a landlord should be exercised with caution. This article will cover some of the important benefits of becoming a landlord.

Financial Benefits
As a landlord, you have the opportunity to earn income from your Real Estate investment. While your property ideally appreciates in value over time, the income that you receive in the form of rent can supplement (or in certain cases even match or exceed) your monthly Loan EMI payment, allowing you to build a home you might otherwise not be able to. Some of the rental income can also be used for repairs and maintenance, enabling you to keep the home in good condition. In addition to rental income, you may also be eligible for several tax benefits:

• Depreciation - Residential rental properties (houses and apartments) typically use the 20 year Modified Accelerated Cost Recovery System(MACRS) schedule for depreciation. This means that you can deduct depreciation costs over 20 years. Note that you cannot depreciate the cost of land since land does not wear out or become obsolete. For example, assume the structure on your property was worth Rs.25,00,000 when you purchased it. You would be able to claim tax deductions of Rs.1,25,000 (25,00,000 / 20) each year for depreciation. Note also that the cost of improvements in property such as adding a room or floor  can also be recovered through depreciation. 
• Insurance - You may be able to deduct the cost of insuring your rented property. Most types of property insurance - including building, furniture or gadgets, fire and liability - may be deductible. A standard homeowner's policy typically does not cover tenant-related losses, so it is important to purchase the correct insurance to protect your investment.
• Property management - You may be able to deduct ordinary & necessary expenses for conserving, maintaining and managing your rental property. "Ordinary" expenses are general expenses to manage property, "necessary" expenses include advertising, insurance, interest, maintenance, taxes and utilities.
• Loan interest - If you took a loan to purchase or improve/renovate your property, you may be able to deduct the full amount of interest. You may also be able to deduct cost of property tax.
• Property repair and maintenance expenses - Any repair and maintenance expenses that are considered necessary and reasonable are tax deductible. Repairs which are required to keep your property in good condition, but do not add value to the property. Improvements that add value to your property must be depreciated. For example, expenses related to painting, plumbing and roof repairs would be tax deductible, along with any other expenses necessary for keeping the rental property in habitable condition. 
• Professional real estate services - You may be able to deduct costs associated with professional services related to your rental property, including fees paid to accountants, property managers and real estate lawyers, brokers/agents
• Tax-free exchange - You may be able to  avoid paying tax when you sell your property if you reinvest the proceeds from the sale in another property. This is called "switching" or a "tax-free exchange."
• Travel expenses - Your travel expenses related to the management of your rental property may be deductible. For example, you can deduct mileage for driving to your rental property to meet  tenants, driving to the hardware shop to purchase necessary repair materials or driving to your property to collect rent payments.

It should be noted that the authorities can disallow any expense that you claim if you cannot show documentary evidence to support the expense. For example, if you deduct expenses related to replacing a broken door but you have no receipts to substantiate the expense, authorities may not allow you to claim the expense and you could be subject to additional taxes and/or penalties. It is vital that you keep accurate, well-organized records. Because many receipts fade over time, it is a good idea to photocopy receipts and then staple the copy and the original together (you can also scan the receipts for a digital copy). 

Obligations and Responsibilities

As you can see, there are many financial advantages involved in owning a property, from loan  interest to maintenance expense deductions. It is important to consider, however, the obligations and responsibilities of being a landlord. Some of them are listed below:

• Financial obligations - You will be responsible for meeting your monthly Loan Installment payment even if the property is self occupied or if your tenant has not paid his or her rent. In addition, you may have unexpected expenses related to your tenants, such as legal expenses incurred as a result of a problem with tenant. 
• Legal obligations - As a landlord (and business owner), you will have to understand and abide by the laws, rules and regulations pertaining to rental housing. You are legally responsible for complying with all local, state and federal laws even if you don't understand them (i.e., ignorance is no excuse). If you are not in compliance, you can be fined, and lawsuits and complaints can be filed against you. 
• Round-the-clock availability - If your tenant calls at 3 o'clock in the morning because the some faulty tap flooded the entire first floor, you will have to be available to deal with the emergency. If you can’t be available to respond to tenant problems, you must designate someone to act and make decisions on your behalf.
• Maintaining habitability - As a landlord/property owner, you are required to maintain a safe and habitable property for your tenants/visitors. You can be held liable for tenant or visitor injuries that result from unsafe conditions. To maintain habitability, you must do the following (at a minimum):

- Keep all common areas, such as hallways and stairways, in a safe and clean condition.

-  Make sure structural elements (e.g., floors, walls, stairs, roofs) are safe and intact.

- Ensure that electrical; plumbing; heating, ventilation and air conditioning (HVAC); and sanitary systems are property maintained.

-  Make sure tenants have access to running water for reasonable amounts at reasonable times.

-  Keep property free from known environmental toxins including lead paint, dust and asbestos.

Your local laws may call for additional requirements regarding "habitability." It is important to know about and be in compliance with all central, state and local laws.

Landlord Readiness

Being a landlord is not as simple as collecting rent. It is important to consider the time, obligations and responsibilities involved before making the decision to become a landlord. You might want to ask yourself the following questions before making a decision:

-   Am I prepared to share my home with other people?

- Can I learn about and comply with local, state and central laws and regulations? 

- Am I willing to spend money to make sure the rental property complies with environmental regulations?

- Can I afford the time and costs associated with maintaining a "habitable" rental property?

-   Am I ready to accept the bad tenant risks associated with being a landlord?

- Can I make the loan installment payment even if the property is self occupied or my tenant hasn't paid his or her rent? 

-  Do I want to be available 24 hours a day to respond to tenant complaints and emergencies?

-      Am I able to maintain detailed and accurate records?

-     Am I willing to pay for professional services, including those of attorneys and tax accountants?

Being a landlord  or property owner , especially Landlord, can be a full-time job, depending on your properties and tenants. Even if you are able to fulfill your duties and responsibilities, it is important to treat your rental property as a business to increase your profitability.