- Rental properties have become an increasingly popular financial vehicle on the road to financial independence.
- Bernadette Joy learned firsthand that being a landlord and managing rental properties is not as easy as it seems — and she ultimately gave it up.
- Between the management requirements and financial costs, there are very real challenges that should be considered before becoming a landlord.
Bernadette Joy remembers a time when she thought owning rental properties was her ticket to financial independence. But as it turned out, the income she ended up generating was a lot less “passive” than she’d expected, due to the amount of work involved.
Ultimately, after experiencing firsthand the everyday requirements and financial costs of being a landlord, Joy — a nationally recognized financial expert and founder of Crush Your Money Goals — cut bait entirely. She sold her rental properties, deciding it wasn’t worth weathering the increasing financial costs and impact on her lifestyle. She set her sights on investing in other ways.
When Joy and her husband purchased the homes that would make up their initial real estate investments, each one started out as a primary residence before eventually being converted to rentals until they were paid off. It was during this process that Joy realized being a landlord could be more costly and challenging than was ultimately worth it.
Rental properties are a popular investment tool on the way to financial freedom, but owning and maintaining rental properties are two very different things.
Here are a few ways that being a landlord can be more expensive than you might be ready for.
(1) Finding and vetting quality tenants.
Finding and vetting quality tenants can be a long process. You will need to conduct a background and credit check and that can be expensive.
“We bought our first property in 2013 and when we purchased our 2nd home and rented out the first, we learned a lot about the renting process and that it could be difficult,” Joy states.
It may not be as easy as it would seem to find quality tenants quickly, and if there is a job loss or a tenant with unreliable income, you could find yourself still covering the mortgage even though you have a tenant.
“We were shocked at how hard it was to find good tenants. We had to sort through applicants with bad credit or even questionable income and we had new tenants after every lease ended so we had to go through the vetting process every year trying to find new tenants,” Joy says.
(2) Maintenance and repairs on the property.
Maintenance of a rental unit can add up to a significant sum of money. Think about the cost of maintaining, repairing or even replacing major appliances, flooring or windows. The property being rented out is generating income, but the cost of keeping it in shape to rent can cost you thousands of dollars.
“In our first property that we rented, it was the immense damage and repairs that were required after a tenant left that made us decide to sell,” Joy states.
Many landlords, especially new landlords, are not prepared for the costs associated with maintaining the property. You cannot ignore leaky toilets or a broken air conditioner and if a tenant asks for a repair or notifies you that something in the rental is broken, you have to take care of it. This can cost you more money than you were expecting to spend.
(3) Fixing and preparing the property in between tenants.
Preparing the unit and getting it in condition to rent can be costly. Every time a tenant leaves, the property must be put back in stellar condition for the new tenant. If there is damage of any kind, the landlord is responsible for those repairs.
Rental property repairs can also show up when you least expect them. “We had a nightmare tenant,” Joy told Insider. “We had no idea how much they had damaged the property and when we went in to get it ready for the next tenant, it was several thousands of dollars to repair everything. We started to feel like any profit we might make went right back into the property and that is not what we wanted.”
(4) Other assorted hassles and major inconveniences.
Even if you find the right property and a great tenant there will still be hassles, inconveniences and unexpected issues. Broken furnaces, frozen pipes during winter, roofing issues, broken windows, etc. If you don’t use a management company to handle your rental property, you are the one to receive all of those emergency calls. You will learn that owning a rental property can be a full-time responsibility just like a 9-to-5.
“We had a situation where one of our tenants had locked themselves out and instead of calling a locksmith, they called us, at 2 in the morning,” Joy stated.
Taking all of this into consideration, Joy came to the conclusion that being a landlord was not for her.
“Some of the issues with the properties really caused an interruption in our lifestyle. It took up time and definitely cost us a lot of money,” Joy said.
After selling all 3 properties, Joy decided to put the profits into traditional investments. “With selling, I was able to make the profit immediately instead of a little bit over a long period of time,” Joy said.
In the end, being a landlord is a lot of work and you have to decide whether it is worth it or even sustainable, given maintenance and repair costs, the work it takes to find quality tenants and the unexpected hassles and emergencies that will eventually happen.