By Gary Kelley
Many people look at rental properties as the way to make a fortune over time. It’s hard to argue with selling a property after years of appreciation. With a rising market money can be made.
Are you a landlord?
The key question I ask someone thinking about acquiring a rental property is, “Do you have the intestinal fortitude to be a landlord?” They always look at me like I’m insulting them.
I’ve owned rental property. I’ve enjoyed the gains, and I’ve also had tenants get in a property and never pay another dime creating an unperforming unit where you ultimately evict someone.
I’m a believer in making the unit “nice” from the beginning…granite, stainless, paint, etc. It’s heartbreaking to see a tenant take a hammer to the walls/toilets/doors just creating damage…damage well beyond the damage deposit.
You might argue these are extreme cases. And while they are extreme, they are real. You haven’t lived until you have the state police call to open a unit as they look for someone accused of murder.
In a more civilized world, you will still have appliances break requiring repair or replacement. You will still have a water leak from a sink/tub/toilet/roof where the initial cause needs repair and then inevitably there is collateral damage needing repair.
You’ll need to acquire and screen tenants, and dutifully keep track of deposits/rents. You need to protect yourself from horrible accidents (trip/fall/ etc) with insurance and/or corporate protections. When one tenant leaves there’s vacancy…and no income for potentially one month or more!
Some people will hire a property manager to take care of this. If you cannot tolerate a 2 a.m. no-heat call, then a property manager is a smart alternative. And remember you need to pay for the property manager.
Keep your eyes open
You may be thinking Gary does not like rentals. It is not the case. Buying/holding/selling investment property is more complicated than it seems on the surface. I just want a buyer’s eyes wide open. Even with great tenants stuff happens. Things break and need repair.
All too often first-time investor buyers will look it their income (let’s say $1000/mo) and their payment (let’s say $900/mo) and think it’s $100/mo profit for ever. Generally speaking the profit in rental properties accumulates over time in the unit’s value….not on a monthly basis. The $100/mo in the example is best set aside for the unexpected down the line.
Sophisticated small investors acquire a property and generally take any equity out and buy more properties. You need to have financial support to do this.
Professionals manage Real Estate Investment Trusts (REIT) and that can be a way to get in the game and not have to make every decision. There are also small operators looking for investors to make their project real….and you need to make sure you are covered so you don’t lose your investment.
And If I haven’t scared you away from rentals and would like to take a look at potential investment properties, please reach out!
Here is free app for your phone/tablet tied directly to the MLS https://www.homesnap.com/Gary-Kelley
Gary is heard on WCRN AM 830 discussing “All Things Real Estate.”
If you need advice on selling your home or buying a new one, give us a call 508-733-6005.