It seemed like a good idea at the time…
Maybe you fell into an extra house unexpectedly through an inheritance. Maybe you found an amazing deal on a fixer-upper and thought to yourself, “Hey, I could rent this property our and make money monthly pretty passively.”
Soon though, you found that maybe it was the passive money-making machine you thought it would be. Even a great house in a good neighborhood needs to be maintained and managed, and that can quickly become more of a headache than you bargained for.
Every rental property has a lot of moving parts:
Finding and vetting tenants
You have to market your house every time it becomes available. This can mean cleaning and rehabbing the property after the old tenant leaves, taking photos ad syndicating the house to all of the regular online websites.
Every tenant has to be interviewed and their background checked. Getting a quality tenant can take a great deal of time and effort on your part.
Maintenance
The bottom line is that the house the tenant is staying in is your property and ultimately your responsibility. When things go wrong it falls to you to fix them.
You can expect calls at all hours to repair the HVAC, leaking plumbing, ceiling fans, toilets, or any of a hundred other things. These repairs can cover anything from and inconvenience to safety hazards and structural damage, and they do not take time off for holidays.
Rent collection
In the best possible world, you get a check or bank deposit for the monthly rent smoothly and regularly every month. But, life can quickly get in the way. Even the best, most well-intentioned tenants can have things that come up that can delay their rent payment.
Less reliable tenants can make collecting the rent a monthly rodeo, and if they do not pay rent this will eventually lead to evictions and extra legal issues.
Renovation and turnovers
When a tenant moves out you have to repair and prepare the house for the next tenant so the cycle can start over. If you have several turnovers in a year it can seem like you are constantly cleaning and fixing an empty house.
Vacancies
Speaking of an empty house, if your rental property is empty you are losing money. Sometimes you are actually losing more money than you would be making if it was occupied.
You will be paying the utility bills, insurance, and taxes on a house that is sitting empty.
So this passive income generator quickly becomes a second job.
In the beginning, you might have had a lot of energy. You are a real estate investor and you get to throw around the term “Passive Income”. It is enough to keep you going through your first few tenants and the first few years. But before you even realize it the entire process can become a burden.
If you are already working a full-time job. You might be thinking about dropping out of the landlord’s second job, selling the property, and using the money to start the next phase of your life. When this happens you have a couple of choices.
Hire a management company
Instead of interviewing tenant after tenant, spend a little time interviewing a couple of property managers.
A good PM can take care of all aspects of management and leave you free to keep the landlord title and rent checks without the added work.
Of course, you will have to pay for this. A good PM will cost you anywhere from 8-10% of the monthly rent. When you think about it this is a pretty good deal. You were probably paying more than that by doing it all yourself.
Property managers will find and vet your tenants, handle the turnovers, collect the rent (they should only get 8% of the rent they actually collect), and even go to court for you. WORTH IT!
Sell your house to an investor
You may be tired of working two jobs, but some people make rental properties their full-time jobs. They might own dozens of properties and have management and maintenance processes already in place.
Since they have many properties they don’t stress a property that is vacant for a month or two. The income from other properties can cover the empty house for a bit.
Maybe it’s time to make some changes
Sometimes you don’t even notice that the property you were so excited to rent out has become a sort of misery. These things can sneak up on you.
Take some time to really look at your situation. How much of your time is spent on this passive income. Are you really making enough money monthly to justify the money and effort you are putting into it?
Maybe it’s time to make a change. Either hire a good management company, get slightly smaller checks but substantially fewer headaches, or find another investor that is willing to take on all of your troubles and give you a fair price for them.