There is a lot of misinformation in the world today and in this section we will discuss fact vs. fiction (myth) with regard to being a landlord and owning Real Estate. As with all the articles on my blog I plan to periodically update from time to time.
Unfortunately, this is more fact than myth. There are shitty people out there who will do nothing but destroy property and steal things. The very first thing you will hear from anyone you mention rental property to is that tenants will destroy your properties and steal everything when they leave in the middle of the night.
For the most part, this is true! Ha! But most tenants are just like you and me. They are just trying to make a living and survive. Proper vetting of potential tenants is crucial to keeping this from becoming a reality. How do you protect yourself? Proper expectations. Expect the property to be destroyed. Expect the tenant to steal everything and leave in the middle of the night and when they don’t you will be pleasantly surprised. More on this later in another article…
Too Much Time and Effort
Being a landlord takes too much time and effort for such little payoff. I hear this one a lot too. This is just plain not the case. Tenants, even the ones destroying your property, rarely need attention IF you hold stable and well maintained properties.
The tenants destroying the property never need attention because they don’t want you to know they’re destroying the property. The other tenants will rarely need anything if you perform proper maintenance on a regular basis. For example: we have all HVAC units serviced by a qualified service provider annually and we change the filters monthly as part of our inspection process.
Monthly inspections and proper maintenance by you, the landlord, creates an environment that is enjoyable by both the tenant and the landlord.
The ROI (Return on Investment) Sucks
Again, this is just not the case. Owning real estate is by far the fastest way to gain wealth. I’ll explain this in greater detail in another article, but many people miscalculate ROI on rentals. You should be even or hopefully cash flow positive on the rental plus you’re gaining equity with every payment being made by someone else. I estimate I am clearing 8-12% on my money annually with rentals. That’s not great when compared to aggressive investing (see portfolio status on the right), but if you’re not savy with stock and options it’s the next best thing.
You Can Retire Immediately
This is indeed a myth. Your expectation, at least for the first five or ten properties, is not to make any money on a per month basis. You can not live on rentals when you first start or own just one.
Remember, Real Estate is the long-game. It’s “big picture” investing with the idea that ten or twenty years down the road you will have a property that is paid for and generating passive income for you to live on in your golden years. The other scenario is to cash them out for a lump when you’re ready which is my personal plan.
You Have to Unclog Toilets
This one always makes me laugh. Almost as popular as the “tenants will destroy the property” is the “why would you want to have to fix a toilet in the middle of the night”. I can honestly say I’ve never had to fix a toilet in the middle of the night. If I got a call in the middle of the night and decided I didn’t want to do it I would simply call a plumber and go back to bed.
Now, I’m not saying I haven’t fixed a toilet! We do most all of our own repairs and we rebuild the toilets regularly and inspect often. Again, it’s about preparation and expectation. If your toilets are 20 years old and have never been touched go ahead and spend that $18 to rebuild it now while it’s vacant so you don’t get a call later.
You Have to Be Wealthy
This is a myth. Some people fall into being a landlord by having to move or deciding to move and realizing they don’t owe that much on the house or the rental market is really good and they can qualify for two properties. This happens every day and is an easy forward step into becoming a landlord.
My financial status was much worse half a decade ago when I purchased my first property and because of the properties my financial status is much better so I can afford more properties. In essence, buying a rental enabled more rentals to be bought. Banks like assets!
You Have to Put A lot of Money Down
This is a fact. Most financial institutions (after 2008) became very strict with investment properties. This has eased slightly in recent years, but most still require at least 20% down and some require 30% or more. I do not consider this to be a bad thing. In fact, I wish they would abolish the 30-year mortgage altogether. If you cannot afford to put cash down or have skin in the game, you shouldn’t be playing the game. If you cannot afford a 15 year note and have 20% down you shouldn’t be buying a house.
Just like with trading…you don’t use the money you need to eat and pay the car payment to trade or buy rental property. You must make and save enough money to cover everything upfront. I make it a rule to put at least 20% down on everything or I don’t buy it. Period.