Being a Landlord Sucks-Why You Shouldn’t Invest in Real Estate
Should I Invest in Rental Real Estate?
Real Estate Investing Series – Part 1
With interest rates still very low, you may be considering investing in real estate. It’s all quite glamorous when you read the “no money down” success stories. There are more than enough real estate gurus out there to show you the way.
But before you buy, I’m going to share with you reasons why you might not want to invest in real estate, now, or ever. In fact, I gave up owning rental property decades ago because being a landlord sucks.
So, let’s imagine that you’re seeking that glamorous lifestyle of the rental real estate owner. You think you’ll have a host of properties and the rent checks will simply roll in.
My Real Estate Back Story
I was raised in the real estate world. My dad started a company the year I was born where he purchased cheap run down homes, renovated them, and resold the newly remodeled homes.
As a child, Sunday’s were spent driving around the city looking for property to buy. In elementary school, my mom got in the business and became an awesome agent. In today’s vernacular, dad was a real estate flipper. I saw him work his tail off, go to sheriff sales to buy foreclosures, and deal with multitudes of bad tenants. When I got older I spent a few years in the business, delivering eviction notices, bidding on property at sheriff sales and buying and selling real estate for my own account and others. I had my share of “bad tenants” who didn’t pay their rent!
Later, I worked as an investment portfolio manager for a real estate holding company. There I managed the stocks, bonds and other investments and left the real estate management to someone else!
Owning Rental Real Estate Is Not a Get Rich Quick Scheme
Certainly, it’s possible to make money as a landlord, and some people thrive in this business. With interest rates lower than they’ve been in years, now might be a good time to invest in real estate if you are financially, temporally, and emotionally able to handle it. Buying and managing real estate is a lot of work and requires deep pockets. Yet, real estate investing can be a way to boost your net worth, slowly, in spite of the stressors of being a landlord.
Additionally, you might get lucky and get the perfect tenant who’s neat and tidy and pays her rent on time. And that tenant might stay forever and never balk at a rent increase. But, don’t count on it-because you’re more likely to have a string of tenants moving in and out.
Here’s what they don’t tell you in “invest in real estate” courses, books, blogs and seminars. Read this overview of what owning and managing rental real estate is really like and why I think being a landlord sucks.
26 Steps to Buying and Managing Rental Real Estate
- Search through many real estate listings and visit potential properties.
- Meticulously analyze the potential income and expenses of each property, making sure to allow plenty of cash for unexpected repairs and vacancies.
- Complete reams of paperwork when applying for a loan.
- Analyze records of the current owner before purchase. Have the judgment and experience to recognize whether the owner’s records are accurate or not. Call utility companies and verify utility costs. Check with the assessor for tax rates.
- Make an offer on a prospective property and negotiate until either your offer is accepted or rejected.
- If you can’t come to an agreement on price and terms, move on and start the process over.
- After the initial offer is accepted, follow up on all property inspections to make sure the real estate is in the expected condition.
- If repairs are needed, negotiate with the seller about completing the repairs, or reducing the purchase price.
- If all goes as planned, sit through an hour settlement, sign all the papers for the mortgage and the purchase and get the keys to your real estate.
- Clean, repair and remodel the property so it’s ready to be occupied.
- Create lease agreements, arrange for service to check credit ratings of potential tenants, and set up a bookkeeping system for the property.
- Advertise the property for rent.
- Vet potential tenants on the phone.
- Meet with the tenants to show the property.
- Review the prospective tenant’s rental application, credit report, and phone the their references.
- Waste a lot of time with potential tenants who don’t show up or are not financially stable.
- Select a tenant for the rental.
- Meet with the tenant to sign the lease, receive the deposit and rent payment. Walk through the unit with the tenant and note the condition of the property. Make sure to record existing flaws in the home. This is important at move out so that you can decide whether the property is in proper condition for the renter to receive their security deposit.
- Field phone calls at inopportune times when there is a problem, a clogged drain, a broken window, a broken stove, etc.
- Arrange with a repair person to make the needed fixes and pay the bill or make the repairs yourself.
- Call the tenant when the rent is late.
- Evict the tenant when they fall months behind in the rent.
- Go to court to handle the eviction or hire an attorney.
- When the tenant moves out and leaves the property a mess, you need to go through the entire process again.
- Pay the monthly bills and maintain the financial records.
- If you hire a property manager it’s not always much better. Then you have to pay the property manager and oversee him/her to ensure they are doing a good job. You also have to comb through their records to verify accuracy.
Why I’m Not a Landlord
If you’re considering rental real estate ownership, go in with your eyes open. Make sure you have some cash for a down payment, spare time to invest in this project, and the endurance to oversee the ongoing management of the rental real estate.
If you have the endurance and enthusiasm, then try out becoming a landlord. Be aware that you’ll end up dealing with a variety of people-good and bad. And you’ll need more cash than you imagined for unexpected expenses and to cover the bills when the property is vacant.
At one point, I thought being a landlord was fun exciting. But that excitement gave way to exhaustion and annoyance at being a landlord.
Eventually, I realized that I can still invest in real estate, enjoy the cash flow and capital appreciation without being a landlord. Read about other ways to invest in Real Estate Investing Series-part 2.
Part 1 of this Real Estate Investing Series-“Being a Landlord Sucks-Why You Shouldn’t Invest in Real Estate” – detailed 26 Steps to Buying and Managing Rental Real Estate.
Part 2, “Pros and Cons of REIT Investments – How to Build Real Estate Wealth“ – is for those of you who want exposure to real estate investing but don’t have tens of thousands of investment capital to invest. Or, you may have the capital but not the time or
Have you ever considered investing in real estate? What are your real estate thoughts and experiences?
A version of this article was previously published.