Part One
Somebody, maybe several people, who say that owning rental property is a great idea and will always provide you with excellent profits, advise that now is the time to become a landlord. Maybe and maybe not. It largely depends on you. I’ll explain why.
This is the first of a two-part series about real estate investing and what it entails, its pitfalls and promises.
First, let me try to talk you out of buying rental property. Think long and hard before you buy your first piece of rental property. And after you think long and hard and decide to do it, think long and hard again. You have any doubts at all after all that, read the following.
The Pitfalls
It’s Work.
I don’t care what the purveyors of the magic of landlording told you. Owning and managing rental property is work. It cannot be passive income unless you hire a property manager, but more about that later.
You will have invested considerable money and time in a acquiring and owning rental property. You know how much money you have to put into it to make a property yours, or yours and the lender’s. Then, you have to get it ready to rent. That can involve anything from simple cleaning and tidying up to painting and carpeting to a major remodel or new roof and heating system. That done and the property is rented, it’s still work.
Things break. And things traditionally break when you are not planning to have them break, usually the Friday night before a holiday weekend as you are getting ready to head out the door for a long weekend. Maybe you can get a repairman to come out and fix it so you don’t have to. Of course, it will be twice the price and you will have to meet him at the property.
Of course, you find out about the broken stuff with a phone call. If you like phone calls, great. That is one of the prime requirements for being a landlord. But, be prepared to gradually develop a distaste for the telephone ringing even if talking on the phone is one of your favorite pastimes. Real estate is full of surprises; there are no good surprises in real estate, and every call from a tenant will be a surprise.
Buying Stupid
The idea is that the rents you receive will not only cover the mortgage payments and the taxes and insurance, but will also net you money every month. If you buy stupid, that will not happen. For whatever reason, many prospective rental property investors don’t or won’t use a calculator. If the rent from the property will not at least break even, you will have to feed it every month. That means you take money out of your bank account to make up the difference between the rental income and what you have to pay out. I know, you get this huge tax break at the end of the year. Many times it’s even enough to pay you back for the money you had to use to feed the property. And we haven’t even looked at vacancies. See that discussion later.