Is your rental property really as profitable as you think?
Although it’s been popular recently, I’m not one for owning rental property. If you want to invest in a REIT (Real Estate Investment Trust), that’s one thing, but to own property outright is another. I just have no interest in it for a couple of reasons.
First, it strikes me as a riskier way to invest, since picking the correct property is key. Second, I have no aptitude for property selection and that’s obviously key to successful real estate investing. Third, property isn’t liquid enough for me. Finally, property ownership strikes me as a lot of work assuming you also manage it. If you don’t manage it yourself, that takes away one of the good reasons to own property in the first place - cash flow. A lot of the cash is flowing to the management company.
It’s that last one that’s a biggie for me. Like I said, I don’t own property, but I imagine these are some of the job requirements:
- Collect rent checks and deal with late payers
- Maintain the property (either yourself or by hiring someone else)
- Conduct legal proceedings against deadbeats
- Show the place to prospective tenants
- Deal with disputes between tenants
This post by Q got me thinking about this whole thing. Apparently, he’s having trouble with one tenant in particular who’s paying late or not at all (the relevant part is about halfway down the post). Then I read Lazy Man having some issues with a tenant.
I think people who advocate property ownership tend to discount the total cost of ownership. If you truly factored in all the time and money you as an owner put in to the property, I’d be willing to bet your ‘income’ is a lot lower than it looks on paper.
real estate investment trust reit
May 21st, 2007 at 12:05 pm
From the blogs I read about real estate investing, I have to agree with you. It sounds like a whole lot of work for not much money. Especially as housing prices have risen (and therefore property taxes as well) over the last several years while rent prices have stayed fairly stagnant.
Even renting out a room can be a pain. A friend has a couple tenants living in his basement who are perpetually late on rent. He could evict them, but they’re so nice, and she’s months pregnant, and the rent check is always just around the corner.
May 22nd, 2007 at 5:55 pm
Real estate ownership can be very lucrative, and very taxing. My partner and I have owned our 21 unit building for 14 years. Last summer I was offered more than 6x what we paid for it, but we decided to hang on as we are finally starting to reap the benefits. The mortgage will be paid off this year, we are at 100% occupancy, and we have completed all of the major repairs, including having all of the windows replaced, tuckpointing, new roof, all new electricity, new furnaces, etc. It took a long time. I was in my early twenties when we started, next year I will be 40. Whether we keep the building for more than a few years, or sell it, it will be my retirement fund. On the flip side, tenants can be an awful pain, I’d say that 20% of mine do not pay prior to the tenth of the month; one is always a month behind. They complain about broken things (valid, for sure, but does it always have to be in the middle of the night?) and about each other. Thy plug up the sewers like mad (you wouldn’t BELIEVE the things we have found in the pipes). In summary, you can make a ton of cash, but you need to be prepared to wait a LONG time for it to start coming in faster than it goes out. You really need to be a good handyperson (paying for a plumber every week will drain you) and you have to be patient with your tenants. If I had to start now - with real estate prices being what they are - I probably would not do it again.
June 11th, 2007 at 12:50 pm
[…] donating is the way to go. Falls squarely in my ‘too much trouble’ category along with managing a rental property and credit card […]