Yesterday, I received an email from my tenant, asking if she could buy a new vacuum cleaner. This is the third one that would be bought for that property, in four years. I don’t know how long your vacuums last at home, but I think my mum has had the same one for over 10 years. Sure, there are four people living in the property and any item will get heavier wear and tear than if I just rented to a single person, but replacing something when you don’t even live on the same continent is a bit of a pain. And I was informed that the bath tub had some mold, a window didn’t close properly, and a few other news a landlord always dreads to listen. So to put things into perspective, here is a list of good and not so good things about rental properties.
Money!! That is why you are in in the first place, so yes, it is really nice to see the money come into your account every month. Especially if you managed to get a good rental yield, and if your tenants, like mine, pay by wire transfer, you know the money will come, and it will cover the bills and then some.
Almost passive investment. Owning a rental is almost a passive investment. You can make it fully passive by hiring a property manager for a small fee. Except in my town that fee was above 20%, and when you take off the taxes on top, well, that’s a lot. So far I have managed to oversee everything from abroad, mainly thanks to perfect tenants.
Building equity. Not only are you receiving a little bit of money every month, you are also paying off a mortgage, or more exactly, your tenants are paying for it. In 20 years, you will be the owner of a property someone else paid for. I guess even your parents didn’t give you such a nice gift.
Wear and tear. So far this year we have had a broken heater, a broken washing machine that was first fixed then replaced, a broken vacuum and a few minor items. Total was over $1,000, which is a good chunk of profit, although it is tax deductible. You should account for wear and tear when you crunch your numbers before buying a rental.
Not so passive investment. Being a landlord is mostly passive, until it is not. What I dread most are vacancies. I need to put ads online, pre-screen potential tenants, then ask the current ones to meet with them for interviews and let me know the one they liked best, as they will be roommates, I have learned from being one myself at some point that it is better to put in someone the others will get along with or you are bound for disasters. When something breaks, you have to go on site, or pay an arm and a leg for someone to do it for you (my solutions, when tenants can’t DIY), eating up your rental profits.
Taxes. Although you can offset part of the wear and tear, and depending on where you live, the interests of your loan from the mortgage, rental income is usually taxed pretty high. Get together with an advisor to see if it is more profitable to operate your rentals under a limited company or any other setup that will help you lower your tax burden.
Catastrophes. It happened to me as a tenant, my place got flooded, the roof started leaking all over my stuff and there was so much water the neighbor below also got flooded. It was a national disaster and insurance companies were overwhelmed, so my landlord didn’t get back much, just enough to fix the roof, but was still out of pocket to replace the carpet and paint the walls. Double, triple check how well insured you are, because when something happens, it can cost you thousands.
Bad tenants. They are the worst part of it all. When my tenant died in Paris, he had been paying his rent on and off for 9 years, but I always had landlord insurance like CIA insurance, and they paid in his place then dealt with him to get the money. When his widow stopped paying for 18 months and her eviction took that long, they paid too. They covered a cleaning of the place and took out all the trash they had hoarded for 10+ years. But the place was still a mess, in dire need of repairs after 10 years of bad treatments. I may moan about my UK tenants being needy but at least they help me keep the place in good shape, whereas the other ones didn’t let me in or make contact for years. Bad tenants are more than people who do not pay. Imagine they set your property on fire, or break all windows just because they fancy! It will take more than their deposit to cover your losses.
I’ve been extremely lucky with my tenants. I’ve only had one late payment and one unit was really dirty when vacated. The security deposit covered most of it. I screen my tenants with credit and income reports. I also walk into the parking lot and look at how they treat their cars. If it looks like crap I wouldn’t rent to them.
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You are the second person I hear talk about the car and I think it is a great idea, although my car is a mess and my home is way cleaner. I wouldn’t rent to myself if I saw my car haha.
Tony Nguyen says
Hi Pauline, I extremely is lucky with my current tenants. they are very kind to me. I think that if we are good landlords, your tenants will treat good with us. Thanks for sharing this post. Hope to read more helpful information from you. Have a nice day
You are right Tony, it goes both ways. I try to treat mine well as well and they are good in return.
DC @ Young Adult Money says
We rent out our basement apartment and I agree with everything you said in this post. Our basement apartment (and our basement) flooded during a huge storm last Summer. Thankfully we got everything cleaned up right away so no real damage, but it can be awkward if the renter doesn’t have renter’s insurance and they expect your insurance to cover their personal belongings when they get damaged.
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that’s why I write it down in their contract so they can’t complain.
Kali @ CommonSenseMillennial says
I’m interested in eventually buying a rental property as an investment, but it is so important to remember all that can go wrong! You definitely need to know the reality of owning a home you rent to others before you jump in – and I appreciate you covering some of those not-so-pleasant realities!
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And I thought being a landlord meant easy rent money every month! But yeah, the bad and the ugly can get quite stressful. I had a friend who rented out his house to a deadbeat… had so much trouble evicting him.
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eviction is the worst, especially when tenants are protected somehow. I was supposed to have the right to evict a tenant to sell the place but mine was too old and the law forbade it! Some are really good at finding loopholes too.
Mike Goodman says
Just like any business there are the pros and cons. With being a Landlord, one way to avoid all the stress and problems is being prepared. Select your tenants, invest in insurance and durable materials and of course organized all documents, contracts and important papers you need.
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I inherited my landlord standing and I hate it. The after tax, after repair, income is not sufficient to override the hassle of getting phone calls as you are going to bed, having to call a tenant repeatedly for their overdue rent, or the time and money spend fixing up a property after the tenant has trashed it. And in an evection proceeding, most of the laws are on the tenant’s side. Needless to say, I am disposing of these headaches as quickly as possible.
If you really hate it, hiring a manager may be an option. Yes, they take a good chunk of the income, but they also know their stuff, what tenants should pay for and what is your responsibility, they will be more consistent in tracking payments so tenants may become better payers, etc.
Done by Forty says
We dip our toes in the water by renting out a room in our house, but plan to acquire several rentals in the coming years. Thanks for the honest breakdown….I think we may try to borrow your plan!
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Budget and the Beach says
I like hearing your perspective as a landlord because I’m a tenant and like to hear what I can do as a good tenant…especially if it helps having them never raise my rent, which they never have in this place I live now. Not sure if I could ever be a landlord myself, at least not without someone to help me do it.
Budget and the Beach recently posted…Nobody Leaves This Place Without Singing The Blues
I generally increase the rents when tenants move out, they are so good I don’t want to see them go for a $25 increase. If they stay for a while, I do CPC increase, 2-3% a year to cover inflation.
John S @ Frugal Rules says
It’s nice to see it from the other side. It’s not in the cards for us right now as we simply don’t have the time, but want to at some point. That said, three vacuums in four years…what are they doing with their vacuums?! 😉
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don’t give them ideas! the place is carpeted throughout though, so there is a lot to vacuum clean.
Mrs PoP @ Planting Our Pennies says
We haven’t had any true horror stories, luckily. The worst was our first set of renters that had clearly stretched their budget to afford the place and ended up having a tough time getting rent when one of them got sick. We released them from the lease and got it filled with better renters paying a higher rate, so not too much harm done there.
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Anne @ Unique Gifter says
Hmm – have you purchased a decent vacuum cleaner? I know that cheap ones don’t last terribly long.
Like you said, landlording is mostly passive, until it’s not!
I’m impressed that you’re managing to be a landlord from afar!
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the first one was pretty good, with great reviews, and didn’t last much, so the second I went for mid range and it didn’t last. If you have a recommendation I am all ears.
Pamela | Hands on Home Buyer says
I teach landlord training classes that attract a mix of new and experienced landlords. The one subject that gets the strongest agreement from the experienced landlords is to run your rental like a business.
Plenty of landlords handle their business haphazardly. But the happy ones keep good records and start off like a professional.
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Hayley @ A Disease Called Debt says
I’ve been lucky so far with my tenants. They’ve paid on time and look after the place, however, there’s been a few phone calls with random problems such as a pigeon getting stuck behind the chimney so we had to remove the gas fire we had installed and the bathroom flooded a week after new tenants moved in. I do dread getting calls from the tenants even though they are lovely. So far, it’s been a drain on finances for us as we’re not making any profit however the mortgage is covered and I can see the long term gain.
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Bryce @ Save and Conquer says
I don’t have any rental property, but two of my brothers do. One rented to a couple of college students. He regretted that when he found a large marijuana garden growing in the garage. It was actually the neighbors who lived across the street that told my brother about the garden. He said he was lucky the police didn’t discover the garden and impound the property.
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Tara @ Streets Ahead Living says
wow, do laws exist with your places in those countries that you can’t come in as a landlord? That seems a bit extreme. I guess here in NY state they can’t come in if I don’t let them in but I’ve never been one to not let in my landlord if he asked.
In Texas though, I remember a repair man was allowed to come in even if you weren’t present and the eviction process is a heck of a lot faster than it is for NY state.
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tenant protection is really strict in Europe, and I would say even in the US if you wanted to screw with your landlord you could find a way to deny them access to the property. It is like a credit card company can chase payment but can’t harass you to your door, apparently a tenant can report you for harassment if you try to collect in person.
Terry @EasyFinancialTips says
A friend of mine has a tenant that demands ridiculous things that are outside of the contract, such as replacing floors because “she doesn’t like them” and so on. She demands things get fixed and then doesn’t let my friend in the house to fix them. Insanity!
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Sounds like a nightmare. I hope the contract ends soon!
I’ve been an accidental landlord over here in the UK for about 4 years.
First couple of years went hassle free, then months of hassle and now back to normal.
Big mistake i made was using a letting agency…they are a volume business that dont care who is in your property.
Landlord – when its good its good, when its bad its really bad
Lisa E. @ Lisa Vs. The Loans says
I like the idea of being a landlord, mostly for the income reasons (who doesn’t?) However, I’m not sure I would be very good at the work involved. If I were to get into real estate, I’d probably consider a property management company. But I’m sure they would eat up a bunch of the profit.
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Jon @ MoneySmartGuides says
I’ve been lucky that my tenant so far has been great. I’m a little concerned though as she is on a fixed income and I need to raise the rent this year. I’m hoping she stays, but we’ll find out in a few weeks.
Jon @ MoneySmartGuides recently posted…How To Turn Your House Into A Rental (And Get Higher Rents!)
Raising rents is always tough. I am lucky to have a quick turnover of 12-18months so I only raise rent when they leave.
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