I have owned rental properties for more than 13 years and being a landlord was one of the best choices I ever made but it is not easy. There are many aspects to owning rentals from finding good properties, to financing them, to managing them. Many people may think the hardest part of being a landlord is unclogging toilets at 2 am but I have never done that and never plan to. There is a lot that goes into owning rentals but you don’t have to do all of it yourself and owning good rentals will give you the income to pay for help. Good rentals can also build a tremendous amount of wealth!
How hard is it to become a landlord?
Being a landlord means many things and how hard it is depends on what tasks that landlord chooses to do. Sometimes landlords do all or most of the work on the properties they own, and sometimes they do very little if any work on them. The hardest part of becoming a landlord for most people is finding good properties and finding the money or financing to buy them. Not every property will make a good rental, in fact, many properties will lose money if you buy them at retail value and use an investment loan for the financing.
Here are the basic steps to becoming a successful landlord, not just owning rentals that may or may not make any money.
- Find a market or type of rental property that makes money. Many single-family homes will not make any money as rentals. It is important to choose a market with good rent-to-value ratios. You may also consider multifamily or commercial rentals which can sometimes have better numbers but may take more work, have more risk, or need more management.
- Get the money to buy a rental. Most landlords will use loans to buy properties but even with loans the down payments are usually at least 20 percent of the value of the property. A $200,000 property could require $50,000 or more in cash to buy with a loan after the down payment and closing costs.
- Repair and maintain the property. Most properties are not ready to rent right away. You may need to make repairs and you will for sure have to maintain the property while you own it. You can do this work yourself or hire it out.
- Find tenants for the rental property. Once the home is ready to rent you will need to find someone who wants to rent it. The home will have to be marketed, tenants screened, leases created, and money collected. The landlord can do this themselves or hire a property manager to do the work.
- Keep tabs on the property and tenants. After finding tenants the work is not done. Landlords will have to check on the property, handle maintenance requests, and possibly handle late rent, hostile tenants, or even evictions. Again, the landlord can do this or have a property manager handle these tasks.
Why spend all this money and do all this work to buy rentals?
A lot of people are probably thinking to themselves why do I want to do all of this to own a few rentals? A few rentals may not make you rich, but once you buy a few, it becomes easier to scale and buy more. If you can buy 10 or more rentals it can provide you with a healthy income and a sizeable net worth that will increase with time. My rentals have made me millions of dollars in less than ten years thanks to getting great deals, market appreciation, cash flow, and the tax advantages that come with them.
Why do some landlords work harder than others?
As you can see there is a lot of work that is needed to be done when you own rental properties. Some landlords will try to do almost all of the work themselves, even the repairs. Other landlords will hire out as much of the work as they can. However, there is still work to be done by landlords, and finding and financing properties is often the hardest part of being a landlord.
Doing the work yourself can save money but it also costs you time and often peace of mind. Working on houses is hard and dealing with stressful tenant situations is also hard. Many people underestimate just how much work is involved and get out of the business as fast as they can. However, owning rentals can be very rewarding financially and spiritually knowing you are providing housing or a place to do business.
How much work should the average landlord expect to do?
When I bought my first rentals I managed them myself with the help of my wife but I never did any repairs to them. I hired out all of the maintenance and remodeling work to my contractors since I also flipped houses. Obviously, I had a huge advantage over many new investors since I already had people who could do the work. If I were to start over again not knowing anyone in the business here is what I would do. This strategy would also apply to me buying properties out of state in an area I have no contacts in.
- I would decide what kind of properties to buy and where to buy them. This can take a lot of time and work, especially if you are new to real estate. My book Build a Rental Property Empire goes over everything you need to know if you are brand new. It can take months before you have learned enough to pull the trigger. For some, it may take longer but that is okay as this is a big investment.
- I would work to find the right financing which can also take a lot of time. Finding local banks where you want to buy is often the best option but there are many other ways to get the money for rentals. You also may need to be saving money or finding a partner if needed. A lot of the time landlords spend on the business is preparing to buy properties.
- Once you know where to buy and have the financing lined up, I would have an agent help you find properties but I would not rely on them to do all the work. There are many ways to find deals and getting a great deal is the fastest way to build wealth in real estate. If you had to spend time doing anything, I would learn how to get great deals.
- Before you buy a property you should have some idea of who will be managing it and repairing it. If you choose to use a property manager they may also have contacts or in-house people who can repair and maintain the property. If I were buying properties out of my area this is the route I would take. Take your time finding the right company and don’t pick the first one that says yes!
- Once you own the property I would have someone else manage it but you will need to check on it once in a while to make sure the people you hire are doing their job. If the property is far away, hire a third party to check on it for you. You don’t need to be the one taking calls from tenants or renting the property, or collecting rent. The property will also need to have accounting set up and tax information collected which property managers can also handle.
- You can scale with rentals by refinancing properties or selling them. I think the landlord should be actively looking at their loans, and returns every year on the properties they own. A lot of landlords have trouble scaling but a refinance or selling properties or using a 1031 exchange can increase the portfolio and ROI.
I think most of the work a landlord does should be in the beginning finding and buying deals. If you want to scale and make the most of your time, leave the management and maintenance to someone else. Focus on the most important tasks and remember to look at the big picture.
Why do I have my property management in-house?
I just told people I think they should hire a property manager but I don’t do that myself, why? I own a real estate brokerage (Blue Steel Real Estate) and my staff manage my properties. I am not the one showing properties (unless they are big commercial properties), and I am not collecting rent, or taking any calls from tenants. I have my own property management company in-house that can handle that for me and I focus on the big picture.
Buying rentals has made me many millions of dollars but it is not easy and it takes work. If landlords focus on the right work it can be a great business. Once you learn how to buy the first properties, the next purchases get much easier. If you are willing to put in the work to buy the right properties and hire the right people to take care of them it is a wonderful business/investment.