Published April 25, 2014
Owning rental property can be a great long-term wealth-building tool that is available even to individuals of very modest means. Plus, it doesn’t take a degree in rocket science to get started on the road to landlordship. But even though most people have the ability to do it, it doesn’t mean they should do it.
Being a property investor is hard work. It’s time consuming, stressful and it can be financially ruinous. Here are some traits and reasons that individuals should not invest in real estate and become a landlord.
You are lazy and don’t like fixing things
If you are a lazy person who doesn’t like to drive out to a property late at night to fix items, or call around to schedule people to fix items, or your weekends are reserved solely for “me” time and not to work on your properties, you should skip the idea of investing in real estate. When things break or there are issues with a property, it’s never a one-hour fix. As a potential landlord, you’d better make sure you are willing to spend some of your free time working on your property because it never fails that the most urgent calls occur on Christmas Eve, Labor Day, and of course, Super Bowl Sunday. So if you are not someone who will tend to your properties, don’t be in the landlord business.
You are very busy
If you have a good job that keeps you working 60+ hours per week and/or you have kids or a business, real estate probably isn’t for you. Things may go well with your properties and you might not have too many issues, but that’s the exception, not the norm. Expect to tend to your properties 4-6 times per year with at least a couple of those being major time-consuming events. If you are a busy bee, you might avoid buzzing into the real estate arena.
You have no savings
If you don’t have savings to maintain your properties in emergencies, you should probably build up some savings first. Doubling down on your credit cards for a $1,500 plumbing bill will bring you a lot more stress than you’d like.
You don’t work well with others
Landlording a a relationship business. Your renters are your customers. They are paying for your retirement. If you treat those customers well, you’ll have a nice retirement income stream. If you fail to be a good, reasonable, helpful landlord, you’ll have disruptions in that cash flow stream that could, and probably will, cause you to exit the landlording business voluntarily or involuntarily. If you aren’t a good social and patient person, you might want to consider investing your money elsewhere.
You’re a good non-real estate investor
If you have a lot of money saved and you’re financially savvy investing that money, you’ll probably be better off continuing on that route. The stock markets have long-term averages of 8 percent plus returns, and few real estate investors can match that.
This is a no-brainer. If you are already rich – think tech millionaires and inheritors – real estate might not be for you. Do you really want to deal with tenants who can really make your life a pain if you don’t treat them with respect? Financial investments – stocks, mutual funds, bonds, REITs — can produce just as good returns as real estate with a lot less risk and hassle.
For those of us who can deal with having to work, don’t mind keeping important holidays open for property issues, are good at working with others, don’t trust or don’t like the stock market, and want to build wealth, real estate could work for you. But, successful real estate investors learn hard and expensive lessons in their first few deals. Educate yourself as much as possible before you start investing. For some, real estate investing can be a much better long-term bet than the stock market.
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Leonard Baron, MBA, is America’s Real Estate Professor®. His unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a past lecturer at San Diego State University and teaches continuing education to California real estate agents at The Career Compass.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.