Real Estate is big business. There’s money to be made. But looking at it as a sure-fire bet, is a fast track to failure. Here’s the truth: investing in property as an income source must be treated like a full-time job. As the old saying goes: nothing worthwhile in life comes easy. In the case of real estate, this couldn’t be truer. If you want your real estate endeavor to be profitable, you must treat it like a job. Like any worthwhile job, neglecting the work will result in failure. So before jumping into real estate from an investment standpoint, you should thoroughly research and consider the challenges. For the sake of this blog, we’ll work off a list, but there really is no concrete order to these challenges.
Finding the right property is challenge number 1. Investing in a “bad” property will cost you more then you’ll make. Is it in a bad neighborhood? Good luck finding a quality tenant for top dollar. How are the property taxes? What many people fail to realize is that property taxes are not the same across the board. With that said, high property tax doesn’t automatically equate to a “bad investment”; you must ask yourself if the neighborhood will attract high-quality, long-term tenants. Going hand in hand with the neighborhood is crime rates. Rental spaces in high crime areas are almost never a good investment; what quality tenant wants to live in a high crime neighborhood? How’s the job market? High job growth typically correlates with a fantastic investment neighborhood. Are there good amenities? Gyms, schools, grocery stores and shopping malls should all be present in the neighborhood, and easily accessible.
Finding the right tenants is challenge number 2. This can be a very tricky process. Implementing a diligent screening process is crucial, and this can be time consuming not to mention headache inducing. Bad tenants will make you wish you never bought that investment property to begin with. You’ll spend all your time and energy dealing with issues, and fearing the next problem.
Keeping the good tenants is challenge number 3. Ok, so you’ve found a great property, you implemented the screening process and found a great tenant. Now your goal is to keep them around. This means regular maintenance, incentivizing renewals, implementing periodic property upgrades, being responsive and easy to reach, and much more. On this note:
Maintaining the property is challenge number 4. With maintenance comes surprise expenses and time commitment. Appliances break, general wear and tear will deteriorate the living space, and it is your legal responsibility as the landlord to handle all of this. If a furnace breaks, or a refrigerator stops working, or the hard-wood floors need replacement etc, you need to dish out the cash to fix and/or replace. Never underestimate how much this can cost you. In the case of a bad tenant who tears your space down, you may end up in the hole.
Tax planning is challenge number 5. Collecting rent creates another form of income, making your tax return a little more complicated. You do have tax write offs as a landlord, such as the interest that you pay on the mortgage as well as all expenses towards the property, but the amount that you collect in rent going towards the principle is not. Owning a single investment property won’t be too difficult to track and file when tax season arrives, but once you have multiple investment properties, things will get a little trickier.
Finding a reliable emergency contact is challenge number 6. We all need time off, and surely the day will come when you want to take a vacation. Being a landlord, you’re on call. If a tenant has an issue with their property i.e. an appliance breaks down, you need to be around to help. Not being readily available can create personal issues between you and the tenant, as well as legal issues should the tenant decide to pursue retribution on a legal ground. This means that if you’re planning a vacation, you need a reliable emergency contact on duty who can help in the case of a tenant emergency.
Being a landlord can be incredibly lucrative, as we’ve explored in past posts. But jumping into this business venture blind is a horrible idea. Despite some popular beliefs, being a landlord is a NOT a passive income. It requires time, money, aid and patience.
