Page 1 of 2
We all would like a little passive income on the side. With property prices on the decline, it’s real tempting to go out there and acquire an extra property or two and rent them out. These days, there’s a lot of condos and town homes on the market that will cash flow from day one - if you manage it properly. Go back and read the last five words in that sentence - “if you manage it properly.” Rental real estate is not a passive investment - you have to be on top of it. While rental income can create a fantastic stream of money over time, before you take the plunge, read these 8 points. They may convince you that becoming a landlord isn't for you.
1. Squeezing Time Out of Your Busy Schedule
Before you go out hunting for foreclosure - remember that with real estate you don’t just invest money - you invest time. Be prepared to cancel that romantic weekend to clean up after the last tenants, paint the walls and replace the carpet. And don’t schedule anything for the following weekend either because you’ll have to stick around to show it to prospective tenants. The time and energy you spend managing real estate holdings is the real cost you pay for being a landlord.
2. The New Hired Hand - You!
You think it’s a hassle to take care of your yard, well get prepared to be a hired hand. Guess who your tenant just hired to clip his lawn and shovel his snow - you. Tenants can be incredibly demanding of their landlords, and when they want something fixed, they tend to call you at the most inconvenient time - just when you’re dressed up and heading to the annual Holiday Party. If you farm it out, you'll need to manage your worker and it will take out a sizeable chunk of your profits.
3. Sorry We Have No Money
Some renters don’t pay on time and others don’t pay at all. It happens to every landlord. It’s not necessarily a willful act on the part of your renters - sometimes they just don’t have the money. Of course, you can always evict them. If you’re a soft touch and it’s a struggling single mother with two kids who just got laid off, get prepared for a gut check. Chances are, if you’re the decent sort, you’ll let them slide for a few months which costs you lost rental income. You’ll rationalize it as charity - but it is involuntary charity and if you have your own cash flow problems, you’ll have to evict them and that means the Sheriff shows up and tosses the mom, the kids and their toys on the pavement. Either way you lose. The kids will never forgive you and you’ll never forgive yourself.
4.They Know the Law
Some renters are pros at stiffing their landlords. They have the money but they also know how to work the system. Depending on which state you live in, the law can really tilt in favor of the tenant. If you want to get them evicted you have to serve them an eviction notice which means you have to track them down. If they don’t answer the door, you can’t serve them. If they hide at a friend’s house or the local bar and come home at midnight, you’ll have to be there waiting in the car. And if they know your car, they’ll be watching out for you. To avoid these artful dodgers remember two phrases ‘credit check’ and 'reference check.'