Rental income from investment properties is high on the list of passive income streams. No question. There may be a disconnect, however, between the vision and the reality of managing investment properties. People have the idea that real estate investors just sit back and wait for the checks to come rolling in on the first of the month.
Unfortunately, that scenario just isn’t true. And when it gets down to it, there’s nothing passive about this form of passive income. It’s still a job. We’ve identified five reasons why managing your own investment properties is a bad idea and share them with you here.
Outside of the initial investment to purchase the property, an owner has to have a sizable amount of available capital to manage the property properly. It’s just a fact of life that appliances break down, plumbing misbehaves and tenants can demolish the premises. These types of repairs can be expensive and they can’t be delayed. As a landlord, you’re legally required to address the problems related to the properly quickly. There may also come a time when you need to take a tenant to eviction court. Do you have a hefty amount of capital to address these types of issues? If not, maybe managing your own investment property is a bad idea.
Most tenants will pay their rent on time, maintain civil behavior with neighbors and take care of the property as if it were their own. But, invariably, even if you do your due diligence via background checks on potential tenants, there may be situations that you never anticipated. Sometimes they destroy the property and stop paying rent altogether. The expense of cleaning and repairs can really add up when tenants have no regard for responsible behavior. Repair bills can easily get into thousands of dollars due to negligent and destructive tenants.
Obviously if a tenant isn’t paying rent or is destroying your property, you want them out yesterday. An eviction is the proper step and most people think that an eviction is a logical and legal solution. It is, but, unfortunately, the tenant usually comes out on top. As the property owner, you will be responsible for court fees in a process that can drag out for months. Of course, you’ve lost months of rent that the deadbeat tenant didn’t pay as well as any repairs as a result of destructive activity. And if the tenant has disappeared and left items in the property, you will be responsible for storage payments. You’ll then have heavy duty cleaning fees for a property that wasn’t respected by the last tenant.
The lives of so many tenants are in transition which is usually why they choose to rent. This means that you will have to review leases, encourage good tenants to stay and manage the results when your property is vacated. Because this flow of income stems from transitional people, you may never be secure in the state of your finances surrounding this property. Learning to live with the unknown is the best thing to do when renting a property but for some people it’s a stress that they don’t want to manage in their lives.
One of the first caveats for property ownership is to carry homeowners insurance. This protects you in the event that a tenant is injured at your property. And there are repair and maintenance issues to be addressed in order to make the site safe. Consider the expenses related to installing handrails at main doorways, peep holes and dead bolts on front and back doors, replacing standard walls with firewalls and the list goes on. These all work for safety and may prove critical at some point but the initial outlay of cash each time a new tenant moves in can really add up.
Probably the most irritating thing about managing your investment property is seemingly always being on call to address property issues. Every tenant will have repair and replacement requests just as the course of normal living, however emergency situations dictate that you address them immediately. Your time will no longer be yours alone when you have to accommodate the unpredictable behavior and needs of any tenants.
So, should you manage your own investment property? Maybe. But be sure to investigate all the implications of rental management before taking the leap into what could be a bottomless chasm of financial and time responsibility.