Has anyone ever told you that investing in real estate can be a huge pain in the you-know-what? So many articles — and many of them even mine — go on and on about how rockin’ investing in real estate can be. What most articles don’t tell you though is what you can expect to hate about investing in real estate. What? Real estate investing isn’t perfect?! Shocker, I know.
Let’s paint this out into some reality.
I only deal with rental properties, so those are all I’m going to speak to. If you flip or wholesale or whatever, I could guess at what the specific annoyances about those might be, but I don’t know for sure so I’m not going to try.
Be very clear though — despite all of these annoyances I’m about to list out about owning rental properties, I still buy them. That’s how good of an investment I think they can be. Sure, you can avoid annoyances by investing in stocks, for example, but you also lose out on the perks, too. If you want to know more about why I’m adamant real estate is amazing (despite the annoyances), check out “4 Reasons to LOVE Owning Real Property (Over Stocks, REITS, & Notes).”
Are you armed and ready for the bad news? The bad news of what utter, complete, obnoxious annoyances you can anticipate dealing with if you buy rental properties? Here goes!
Download Your FREE Tenant Screening Guide!
Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.
4 Hassles You Can Expect to Hate When Owning Rentals
Dealing With Problem Tenants
Does there even need to be a list after tenants? Probably not! Tenants are usually a very black and white situation when it comes to rental properties. They either make your life exceptionally awesome or exceptionally horrible. Good tenants will keep your life easy, profitable, and amazing. Bad tenants will give you more headaches than you can imagine, and they can cost you an absolute fortune. The only real middle ground with tenants is if you have solid paying tenants but they are high-maintenance and kind of annoying so you just kind of have to put up with them (but you’re still making your profit).
A real bummer about tenants is that it can be really hard to decipher who the good ones will be. Oftentimes people who look fantastic on paper (credit scores, income, etc.) can go completely haywire and ruin your life, and sometimes people who look terrible on paper can be your easiest and nicest tenants. It can be six of one, half a dozen of another, and there’s no perfect equation to say for sure who you will end up with.
One of the absolute best mitigations against bad tenants is to have higher end properties in nicer areas that you can charge more for. It’s never a certainty you won’t still get bad tenants at higher price ranges (it most definitely still happens), but at least it lessens the chance. The lower the rents on a property, the lower quality tenants you will attract. That’s when things can get wild. Just know, bad tenants are the number one cause of disastrous headaches and stress, and they are an absolute bash to your wallet. I’ve lost thousands, and I mean THOUSANDS, to bad tenants. Bad tenants are no joke. So get educated and try your best to mitigate the potential of getting the bad ones.
The Hassle of Repairs
These can range in frustration levels from just annoying to mega cash loss. Normal, everyday repairs aren’t too bad. It’s just a matter of getting out there or getting someone out there to fix them. For bigger repairs, though, the financial consequences can be quite painful. Hopefully on the really big ones, you can get insurance to chip in, but at a minimum, there can still be headaches with that.
Generally, though, repairs are unavoidable. A property will always deteriorate to some degree, and you, the owner, will be responsible for keeping it up. Repairs can be a beast in themselves, but when things really get fun is when it’s actual tenant damage. Hopefully insurance does kick in for those, but tenant damage can get pretty severe.
For example, I had a tenant last year who negligently lit the fireplace without the flue open and left the house. Every single floor of the house ended up with severe smoke damage, and basically everything in the house had to be replaced. Insurance did step in for it, but the time to do the repairs and the vacancy that was forced due to the time for the rehab and the overall stress of the whole thing was tremendous. You know what was really the most stressful part about that whole ordeal?
Handling Subpar Contractors
Oh man, don’t even get me started. Is it just because I’m a blonde girl who legitimately doesn’t know anything about how to fix things, or does everyone have as hard of a time with contractors as I do? It’s like pulling teeth sometimes! I can think of no contractors I’ve worked with so far who didn’t either steal from me, completely dupe me for pricing, take an astronomical amount of time to finish the work, or give me something different than I originally wanted at a much lower quality level.
Obviously, the common thread there is me, but dealing with contractors is a tricky world and not for the birds. I’m a pretty smart chick, but I get duped by them constantly. I think my fault is I’m too trusting, but it does go to show how hard it can be to find good, upstanding contractors. Enter headaches stage left.
Working With Less-Than-Ideal Property Managers
Obviously, this one is avoidable if you don’t use property managers, but if you are like me and always use property managers, you could be in for a fun ride. The only thing that has cost me more money on my rental properties than bad tenants is bad property managers. Bad property managers can cost an owner a lot in repair overages, vacancies, bad tenants, and not taking care of the property. Headaches can be huge with property managers, too. The next worst thing to a property manager costing me a fortune is them causing me constant undue stress. I still use them for my properties because I’d take property management headaches any day over tenant headaches, but they are still super annoying at times.
See a trend with a lot of those? People. Except for repairs and things breaking, every other downside has to do with people. I actually started questioning humanity after I got into real estate. Not sure if you’ve noticed lately, but humans can really suck. And there are tons of humans involved in this industry, and usually they are held to little accountability!
Outside of people, what about numbers? Notice I don’t mention property values as being a downside of owning rental properties. Property values going up or down affect any property, right? Well, not totally. Ultimately, the value of your rental property only matters if you are buying or selling. If you are just holding, a decrease in value doesn’t matter.
With that said, what does matter in terms of “value,” so to speak, for a rental property is rental demand and rents. If the rental demand goes down, you could be stuck with increased (costly) vacancy periods, and if general rents go down, your cash flow could be dramatically (negatively) affected and possibly put you at a loss on a property you were previously profitable on. Be sure to get educated on how to smartly buy rental properties. Then you have less risk of those things happening. Otherwise, all you need to worry about is whether a property is estimated to cash flow or not, and you should be OK on the numbers. The only things at that point that could negatively affect your numbers are the things I listed above.
So what do you think? Are you ready to ditch rental properties as an investment strategy completely? I’m not! Despite losing thousands to bad tenants and having headaches because of everyone else in the process, I still stand behind rental properties all day long. If you are curious why, in spite of the frustrations, check out “4 Reasons to LOVE Real Estate Over Any Other Investment Out There.” The fact is, I’ve still made more than I’ve lost because I bought smart.
Any other major downsides to owning rental properties you have experienced or can add to the list? Have the downsides ever deterred you from buying rental properties?
Leave a comment, and let’s talk!