We’ve owned 2 rental properties for over 10 years. Truth be told, we probably overreached when we bought them. And even though becoming landlords has been one of the best financial moves we’ve ever made, you’d be wise to consider all of the ups and downs before diving in.
For example, we’ve experienced some recent wins and losses. Last month, one of our renters needed to break his lease after losing his job – which left with a week to scramble and find new renters. That meant paying for an ad, getting the house cleaned up, interviewing applicants; the whole thing was super stressful, and we were sure we’d be out at least one month’s rent. LOSS
Luckily, the house was in really good shape, needing only a good cleaning. Even better, we found renters who had to move into the house immediately. Like, our old renter moved out at 8 AM and the new renters were there helping me get the place cleaned up by noon! Oh yeah, we also threw a huge chunk of money toward the mortgage, so we’ll have this particular property paid off in about 3 months. Win, WIN, WIN
Honestly, we love being landlords… most of the time. Owning rental property is a great tool for investing in your future. But before you decide to run out and buy a property yourself, here’s some honest food for thought.
Being a Landlord – The Good
Diversification: We look at rental property as another tool in our investing toolbox. It’s not our only investment vehicle. Instead, it’s a way for us to stick a few eggs in different baskets. Eventually, these rentals will help supplement both our kids’ college education and our retirement. We think that’s pretty great!
Income: Did somebody say money? HOOOOO! Seriously, we love rental properties because they’re not just money for later; they provide an additional stream of income right now. We’re trying to create as many streams of income as we can, and you should too. The more money you have coming in from separate areas, the more financially stable you’ll be.
3 Ways to Earn: Speaking of money, rental properties provide you with 3 ways to earn. Our strategy is to buy the house below market price, make money while we own it, then sell it off (maybe) when we’re old and gray. So, we make money on the front, middle, and back end of the deal. BANG! Even more diversification.
Real Property: Another thing I love about real estate is that it is tangible. It isn’t paper money. A rental house is something that you can touch and use. It has real value, which means it will always be worth something. Beyond that, no matter where you live, there will never be a shortage of renters.
Using Other People’s Money: We were able to afford our first rental because we financed it. For us, it was a good deal because our renters have basically paid off both properties. Within a year, we’ll own two rental homes outright… paid off with other people’s money. That’s pretty sweet if you ask me.
Being a Landlord – The Bad
Carrying a Mortgage: Don’t run out and finance a rental house just yet! Borrowing on a rental house means some fairly major risk for you. If your renter doesn’t pay, is late, or the property is empty, you still have to pay that mortgage bill every month. Before making the leap, be sure you’ve got the money to cover the costs for a few months if needed. (Side note: To reduce our risk, we plan to purchase our next rental using cash.)
Repairs: Being a landlord isn’t all fun and games. Sure, it’s awesome to watch the money roll in when nothing is wrong. Heck, we go months at a time without any problems. But, when something breaks, you are responsible to fix it. That means you need the money, the knowledge, or both to handle the issue. We’ve replaced heating and cooling units, refrigerators, roofs, and more. Just last week, we called a plumber to snake out a drain. Build these costs into your rental fee each month so you’re constantly saving cash for the next repair.
Finding Good Renters: A good renter can be worth their weight in gold. Seriously, we’ve had one group who has rented from us for about 8 years. Although we have the occasional hiccup, they are relatively easy to deal with and take excellent care of the property. Unfortunately, these type of renters aren’t usually the norm. So, when you find a good renter, hold on to them.
Being a Landlord – The Ugly
Major Repairs: After being a landlord for a few years, you WILL have your own horror stories. Walking into a property that is destroyed, finding dead animals, having to evict tenants – these things can crush your soul and cripple your budget. We once walked into a rental to find the front picture window replaced by a window found in a junk yard. There was also thousands of dollars in dry wall, carpet, and other damage to the house. In fact, all the interior doors were missing… the freakin’ DOORS! We spent over a week, day and night, cleaning up the mess – sending the babies to Grandma’s house and celebrating our anniversary by painting walls and ceilings. Not fun.
Don’t let the horror stories scare you. The vast majority of the time, being a landlord is easy money… and it’s one of the smartest things we ever did.
When I think about all the fuss, it all seems relatively minor. In a few months, we’ll have 2 properties that are paid off, generating cash for years to come. They’ll provide a great monthly income base for us, supplementing the cost of college and our retirement. Spending a few hours snaking drains and painting walls is definitely worth that!
Do you own rental property? Have you thought about buying a rental house? What horror stories do you have? Let us know in the comments below!