Why people hate being landlords
We have been real estate investors, landlords and property managers for several years.
We do a lot of consulting with new, want to be, or about to be landlords.
We often see a common theme with small landlords. They like the idea of owing properties, but they do not like being landlords.
We hear all sorts of negative tenant stories, plus stories of property managers not living up to their expectations. We often feel that the resentment, pain and suffering of being a landlord can be avoided or at least minimized with a slight reality check and expectation evaluation.
The number one question we ask anyone who is or wants to be a landlord is Why?
Why do you want to own a property or several properties?
The next question is what?
What do you want to accomplish in your life by owning a property or several properties?
You see, it is important to realize that real estate is only one of many ways to build wealth, there are also several ways to get involved with real estate investing.
The most basic form that I want to discuss in this post is when you buy a property and place it for rent.
It sounds simple, and for the most part it really is, so the question is:
How does this simple form of investing get so complicated in the minds of so many small landlords?
Small business realization– When you own an investment property most people do not seem to realize they own a small business. You bring in revenue, you pay expenses, you pay tax, you pay vendors to help you maintain it, and you have one or more customer. Small businesses require effort to provide a great product and please your customer (tenant), they are the revenue portion of the business. When we consult with small landlords this is one of the first things we discuss. Many people do not have the desire to work a regular full-time job, and then have to look after another business when they are off.
Cash flow myth- Many new landlords are under the impression that you can buy a property with a small amount down, place a long term tenant that is going to pay maximum rent, never have to do any repairs and maintenance and viola they just increased their income by $500 (often less) per month. I agree you should never buy a property without the intent of cash flow (some people by losing properties for tax reasons, I feel if you are in business the desire should be to make money). The reality is that even if your property is cash flowing really well, an eviction, major capital project like windows, roof, etc, an emergency issue like a sewer back up etc.. can wipe out a couple of years of cash flow pretty quick. If you have an investment property it is important to set up a contingency fund and a long term maintenance plan. A lot of investment books seem to focus only on cash flow. Cash flow is important, but it is meaning less if you are constantly stressed out about how you are going to pay for maintenance, repairs, vacancy etc…
Not knowing who to call – This can be a major problem and can cause a lot of stress. Picture this: It is a nice sunny afternoon in August, you are having a picnic with your family on a beach an hour outside of town, then your phone rings. It is one of your tenants and there oven is not working. They tell you a story of how they need the oven fixed right away, because they plan to bake bread to feed the homeless that evening. What do you do. You need to have a plan already in place. If you do not have a plan, it could ruin the rest of your afternoon. In the customer service business, if you do not have the confidence to get it fixed, or come up with an alternate plan for your tenant, not only will you cause yourself stress by not being able to fix the problem right away, but also the tenant may make you wear their problem. I will give you an example of how a plan works, this is a true story. Shelly was away in the Carribean a few months back, she received a text from a tenant about her oven not working, and she was about to make supper. Shelly sent a text to our appliance repair person, he sent a text back to say he would be on it asap. She followed up with her tenant to let her know the appliance guy would be coming. The tenant texted back to say our appliance guy had already been their replaced the oven element and was gone. I am not suggesting that all our maintenance issues are solve this easily and quickly, however, my point is to have a list of people to call. Make sure to have a relationship built on integrity. Do not nickle and dime people on small jobs, pay right away, be glad you did not have to do it, and your customer (tenant) is happy.
Not wanting to spend any money – When you own properties the one thing I can predict is that no matter how great your plan is, you will need to spend money at inconvenient times. Maybe your car brakes down, a fridge breaks, and a tenant gives notice all in the same week. It can seem like a hassle, and for the most part it is. That is ok, it is all part of the business. It is important to realize that things break, tenants move out. If you are going to own properties, you need to be willing and prepared to spend money on them. Real estate investing using the buy and hold strategy is a long term plan, not a get rich quick plan. A good way to look at your portfolio is to think of it as a big unit, sometimes people feel reluctant to spend money on homes they are not living in. You need to keep your income properties in good condition to attract and retain tenants, and keep your revenue stream consistent.
Inconvenient timing of tenant calls – We have had several landlords say they cringe when they see a text or email show up on their phone. They tend to not want to deal with any issue, no matter what it is. I agree that there is never a perfect time or place to receive a call, but you need to realize the tenants are your customers, your product is the rental. Whatever the problem is, deal with it immediately. Customer service issues that are ignored do not tend to get better with time. If you are lucky the tenant will keep bugging you to fix the issue. If you are unlucky they will say nothing and then move out, only to leave you with having to fix the problem before you can rent it again. Think long term, build a reputation for excellent customer service.
Not having time or skills to handle repairs – I invest in real estate for several reasons, a couple of big ones are for future financial security, and to design a lifestyle that puts what I value first (it happens to be family). I would suggest that unless you are a skilled trades person, to hire out your maintenance, and even if you are a skilled trades person, do not get in the habit of working seven days per week. If you are a landlord and you plan to work your regular day job and a property maintenance and renovation job in your off hours, of course you are going to feel run down. Hire out the work. Spend time on a Sunday with your family, not painting an apartment. I think you get the picture. The other thing is that if you are a “do it yourself-er” and you are not very good, you are actually taking away value from your properties. I have seen a lot of really bad renovations over the years. Do not be cheap, think long term, let the pros do your renovations.
Huge tax benefits- I have met with people who carry under performing properties in there portfolio for several years, and they claim it is for the huge tax benefits. I will tell you there are some fantastic tax advantages to owning investment properties, however, I would not recommend buying income (notice the term income) properties for the purpose of losing money. You might lose money, but just do not do it on purpose. Consider the tax advantages an added bonus.
Expectation of Passive income – Real estate investing is not a good way to get passive income. I am sorry that even though the government of Canada considers rental income to be passive, it is actually a really active way to make money. You have to work for it. Now, if you have a simple portfolio consisting of one or two properties, it does not have to be hard, but it is still not passive.
Property manager is no good – We have had the experience of dealing with several property managers. We have had some great experiences and not so good experiences. What we have come to realize, is that in order for a property manager to be good, they need to understand our goals, values, budget, and what we want out of the property management agreement and our investment properties. This can mean a lot of different things to many different people. The property manager needs to be on the same page. I will say, if you are going to hire one, make sure they are qualified to do the job. Do not just trust anyone with your properties.
I hope that explains a bit about what you should expect and assume that will happen if you are a landlord. Shelly and I love properties and providing excellent customer service, I will admit that even we might cringe a bit when a call comes in at an inconvenient time, however, all we need to do is remember and focus on our long term goals. Be happy when a tenant calls, build a team, have people ready that can solve a problem for you.
Michael P Currie