As I’ve mentioned numerous times already, I love rental property investing.
It’s my passion, my hobby, my career, my baby.
However, it’s not always fun, and I want any potential investor to know both the positives and negatives before jumping in. Obviously, I don’t want to discourage you, but I’d rather have you know the tune before starting the dance. The following list outlines some of the primary difficulties, dangers, and annoyances of being a rental property investor. I will also include some thoughts on how to overcome these issues.
5 Not-So-Great Aspects of Real Estate Investing
1. Building wealth takes time.
“What? You mean rental property investing is not a get-rich-quick activity? I want my money back!”
Yes, incredible wealth has been built by those who own rental properties. However, that wealth has never been built overnight. Instead, generating wealth through real estate is about taking consistent action over a long period of time. The keywords there are “consistent action” and “long period of time.” Are you prepared to get in this game for the long haul? Are you ready for the ups and the downs that will come with your rental properties?
If so, proceed.
Related: The 9 Things I Hate the Most About Being a Landlord
2. It can be all consuming.
Rental property investing has a tendency to take over your life, as any passion can. My wife and I sit down for dinner each night and struggle to not talk about our rentals. When I lie in bed at night, I have to force myself to not think about all the moving parts. Even when I’m watching an episode of Friends, I find myself thinking, “Hmmm, I wonder how much that apartment would actually rent for…”
Then there are vacations. Landlording doesn’t offer a two-week, paid vacation each year. There is no “vacation auto reply” feature you can engage to deal with maintenance emergencies while you’re away. Problems do happen—any time, any day, any year. A broken pipe does not respect your personal time. However, your business will run the way you set it up to run. If you appoint yourself the “fixer of pipes,” then yes, you may run into problems. However, if you run your business like an owner instead, you can then outsource most problems and enjoy the occasional vacation. But if you are anything like me, you’ll spend a good chunk of that vacation thinking, “Hmmm, I wonder how much that place would rent for…”
3. You have to deal with difficult people.
As a rental property owner, you are not an island. You must be involved with—gasp! —other people! One of the things that has gotten me “down” in the past decade of being a landlord is being required to deal with people who aren’t necessarily easy to get along with.
From contractors to deadbeat tenants to bankers and other challenging individuals, sometimes you will have to associate with difficult people in difficult situations. You may need to fire a contractor who doesn't show up on time. You may need to let your property manager go when he or she can't fill a vacancy fast enough. You might have to hear the same sob story about why the rent was late for the 100th time. You will probably have to evict a tenant.
Understand, however, that you can limit your exposure to difficult people by managing effectively. By doing your due diligence up front to find a great contractor or property manager, you will reduce the probability that you will later need to fire that person. By screening your tenants exceptionally well, you’ll be able to weed out the ones who will cause you the most damage. By outsourcing tasks you don’t want to do (such as answering phones and showing vacant units, as I have done), you can decrease your interaction with difficult people and situations.
4. It involves paperwork and bookkeeping.
Here’s something no one told me when I was getting into the rental property game: there is a lot of paperwork to keep track of! From leases to forms to taxes to insurance, a good portion of an investor’s time is spent just keeping the paperwork side of the business organized. I probably receive 50 pieces of mail each week that somehow involve my rental properties, and each one needs to be opened, read, dealt with, and filed. Luckily, my wife is a master at handling this side of the business and keeps our life organized, because without her, I’d be an unorganized mess!
Furthermore, when investing in rental properties, you absolutely must keep accurate bookkeeping and accounting records, which can be challenging. QuickBooks is not an easy software to learn, and if you stick to using spreadsheets, be prepared to juggle a lot of them. Receipts need to be logged and filed, contractors must be paid and those charges recorded, and come spring, your taxes will begin to take on a life of their own as your rental portfolio grows.
Related: 4 Hassles You Can Expect to Hate When Owning Residential Rental Properties
5. You can lose your investment.
Lastly, let’s be honest: rental properties are an investment, and as the basic definition of investments would imply, you could end up losing. Not every rental property owner is successful. In fact, I would argue that most “mom and pop” landlords lose money because they don’t run an effective rental property business. However, there are ways of decreasing your risk and increasing your chances for success, and by improving your knowledge, you are already employing one such way.
There are likely other downsides to rental property investing that I didn’t cover in this section, and you’ll hear about them the more time you spend around landlords. (We’re a vocal bunch!) However, none of these problems are insurmountable. With the right education, networking, and systems in place, you’ll do great.
What would you add to this list?
Leave your thoughts below!