The Pros and Cons of a For Rent By Owner Home

If you're thinking of ways to supplement your income with a sidestream, you're definitely not the only one. Disposable income has been in freefall in the US as a rough job market and an escalating cost of living crisis bites.

While some might turn to second jobs, others may go down the passive income route by renting out a property that they own. The "for rent by owner," or FRBO route, involves a landlord renting out a property they own directly to a tenant, without a management company.

For private landlords, this might seem like a simple way to boost cash flow. However, renting to tenants directly has its pros and cons. Here's what you need to know.

Pro: More Control Over Your Property

If you prefer to have full control over your private rental property, FRBO is the way to go. As the sole landlord and manager, you can set your own rent, conduct your own tenant screening, and decide the terms of the lease.

You can communicate directly with tenants to offer a more personalized service. For those living in a rental, it can be nice to have face-to-face contact with the landlord, rather than a company.

Real estate is emotional, and those who would rather not have a professional service handle the day-to-day running of their property might prefer to go it alone.

Pro: Fewer Fees

At least in the short term, being a sole landlord can save you some money. After all, property management services will charge for their work, and this will often equate to a certain percentage of rental yield, rather than a flat fee.

As a FRBO landlord, you are in control of your own costs and can use the money saved on management fees for upgrades, maintenance, and the rest. However, it's important to see what services are included in a management fee, as this might actually save you more money in the long term.

Con: Time, Effort, and Resources

This is the most obvious drawback. If you are the sole landlord and manager, all of the responsibility is yours. You will need to organize all maintenance and repairs, including liaising with contractors to do the job.

You will handle all tenant communication and deal with any issues that might arise. For some, this effort and time expense is more than it's worth.

Con: For Rent by Owner Compliance Hurdles

As a landlord - even for a single property - you have a large array of legal obligations. You need to fulfill all of your responsibilities, document your finances in a compliant way, and ensure all paperwork is filed with the correct authorities at the right times throughout the year.

Failure to do so can lead to professional sanctions and fines. If this sounds too stressful, consider outsourcing your compliance to a property manager.

We Help You Get More From Your Investment Property

The "for rent by owner" model is preferred by millions of small-time landlords across America. However, it's important to assess all the pros and cons before you choose your approach.

If you would rather outsource to the experts, we're here to help. At Everest Property Management, we can take the stress off your hands, all while making you money in the process. In fact, you can even consult our ROI Calculator to see exactly how we can optimize your property portfolio on your behalf.