Landlording is Not All That Passive

Houston, Texas
General Landlording & Rental Properties
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Landlording is Not All That Passive

Terra Padgett
Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes

You always hear about rental properties as passive income. Well I totally disagree. Even with PM in place, there are still many active activities when it comes to direct property ownership. Yes, it does take several tasks off your plate, but it is NOT “truly” passive. When it comes to your rentals, do you agree or disagree?

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Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
2y

I had gap in between tenants at a long distance mid term rental a few months ago. A buddy of mine and I went and spent the weekend at the property. He was talking about wanting to get into real estate...his exact words were, "I just want some passive income." In the exact moment he was saying that, I was snaking the shower drain. Agreed...not passive. It can get more hands off over time though. 

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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    2y

    Well said.  Lots of spam on the forums.  When I get tired of it, I stop visiting the site...and my times away get longer and longer.  There are few posts from members who are actually buying real estate...with their own money...and walking their talk.  I read those posts and ignore the others...and there has not been much to read over the past year or two.  Terra, I am not referring to your post.

    3Reply
  • Account Closed
    Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes
    2y
    Quote from @Jay Hinrichs:
    I suspect your results are directly related to the quality of your rental properties.. 

    You nailed it Jay. All of our properties are houses and neighborhoods that we would live in ourselves. 

    0Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 796 votes
    2y

    Real estate ownership is more passive than a W2 so I don't have a problem calling Real estate passive.  

    Here is the typical order of the most passive investments (syndication) to the least passive in my opinion.

    1)Syndication as a Limited partner

    2)Absolute Ground lease investments

    3) NNN investments

    4) NN investments

    5) Long Term Rentals

    6) Mid Term Rentals

    7) Multifamily with a property manger in place

    8) Short term rentals

    9) house flips

    10) development

    2Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    2y

    No, landlording is not passive at all. Even if you have a property manager there's still a decent amount of work

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    2y
    Quote from @Terra Padgett:

    You always hear about rental properties as passive income. Well I totally disagree. Even with PM in place, there are still many active activities when it comes to direct property ownership. Yes, it does take several tasks off your plate, but it is NOT “truly” passive. When it comes to your rentals, do you agree or disagree?


     Yea mostly agree to this. Always going to be some level of work involved.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @John M.:

    Real estate ownership is more passive than a W2 so I don't have a problem calling Real estate passive.  

    Here is the typical order of the most passive investments (syndication) to the least passive in my opinion.

    1)Syndication as a Limited partner

    2)Absolute Ground lease investments

    3) NNN investments

    4) NN investments

    5) Long Term Rentals

    6) Mid Term Rentals

    7) Multifamily with a property manger in place

    8) Short term rentals

    9) house flips

    10) development


    couple of others that could go to the top of the lists are buying Timber deeds and Oil and Gas rights leases.  Not that your going to log the timber or drill for oil. Just owning the assets and let them sit.
    For instances the largest owners or funders of Timber Deeds and or Timber land in the pac nor west is John Hancock and the Harvard endowment fund.. These are very passive investments
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Jay Hinrichs:
    Quote from @John M.:

    Real estate ownership is more passive than a W2 so I don't have a problem calling Real estate passive.  

    Here is the typical order of the most passive investments (syndication) to the least passive in my opinion.

    1)Syndication as a Limited partner

    2)Absolute Ground lease investments

    3) NNN investments

    4) NN investments

    5) Long Term Rentals

    6) Mid Term Rentals

    7) Multifamily with a property manger in place

    8) Short term rentals

    9) house flips

    10) development


    couple of others that could go to the top of the lists are buying Timber deeds and Oil and Gas rights leases.  Not that your going to log the timber or drill for oil. Just owning the assets and let them sit.
    For instances the largest owners or funders of Timber Deeds and or Timber land in the pac nor west is John Hancock and the Harvard endowment fund.. These are very passive investments

    And Water rights out west this is also a huge deal. And very passive.
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  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    2y

    Direct real estate worship is passive…haa…haa. As @Jay Hinrichs said, it really depends on the quality of the location, and consequently the quality of tenant you can obtain. I’ll also add that it depends on the real estate cycle you’re in. Everyone was gangsta 2013-2021 when the market was going up, up, up…when there were always tenants looking for rentals…when rates were rock bottom and it was easy to obtain a loan…everything was going your way. Now much of that is reversed (severity is dependent on specific locations) and vacancies are going up too. Syndications are blowing up. So real estate is generally a lot harder now then during that growth phase.

    Personally I’d like to see someone systematically track private syndications (as best as can be done). You always hear about them during up markets. And then many promoters get strangely quiet once the market turns. IMO now is the time to put out active info and stats on syndications as well as DSTs. I want to know how they’re doing during difficult markets, and not only in good times.

    But getting back to direct rentals ownership, no question it is harder now than a few years ago. And now is the time when one appreciates high quality locations, fixed rates, and not being over leveraged. 
    Good luck everyone. 
    ———-

    my2c

    0Reply
  • Julie Sisnroy
    Realtor · Papillion, NE · Member since 2013 · 134 posts · 59 votes
    2y

    I guess it depends on what the definition of "passive" (aside from the IRS definition) is.  I have a very hands on PM / Portfolio management team that makes it 98% passive.  Occassionlly (once in 3 years), I've had a semi-large appliance replacement, and even then they took care of it for me. No, it is not 100% passive as hardly anything is - ask a day trader.  So, if 100% no-involvement-whatsoever is the definition, than no, but pretty close. My definition is the amount of "work" I have to do as I believe my time is of value.  

    However, I also come from a perspective of also owning several short-term rentals. Owning STRs is a significant amount of work, especially compared to LTRs. I look at a STR as more of a hospitality business than a REI, and you are not only managing the physical property, but you are managing people as well. While, you may earn from the equity standpoint, you are definitely trading time for money. This has never been the case for my LTR, even when I did NOT have a PM.

    Of course, the volume of your portfolio is also a player whether you own LTR or STR.  Owning 10 doors is a lot different than 100 doors and obviously less work.

    1Reply
  • Julie Sisnroy
    Realtor · Papillion, NE · Member since 2013 · 134 posts · 59 votes
    2y
    Quote from @Michael Smythe:

    It's rarely passive.

    An investor should pay attention to their P&L to avoid errors (no one is perfect), question high and unordinary expenses, and discuss possible solutions to challenges.

    On average, should only take 1-4 hours/month if less than 4 properties.


     I would agree, but based on that, unless you are drawing a very hard line between active (100% of your time) and passive (0% of your time), IMO 12-20 hours (or even less) a YEAR is pretty close to "passive."  

    0Reply
  • John M.
    Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 796 votes
    2y

    I have a YOUNG friend of mine who has only one LTR Townhouse.  Earns about 4,000 a month on it and he is thinking about getting rid of it because ONE time last year he had to get involved with his property to oversee the installation and cost of a new HVAC.  This property is paid off.  He made 2 phone calls, met with 2 different contractors, but didn't do the work.  His view is that this not very passive and a strain for him.  To me this is fairly passive, but to him it was like the whole world was on his shoulders.  Sometimes it's all about your own perspective of where this asset fits into the peace of your life.

    1Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    2y

    @Terra Padgett

    I have 26 SFR and self manage. I find it pretty easy to do, but maybe I got lucky so far. I work full time and don't spend time at my rentals other than some minor things occasionally. I hire it all out. Nobody calls me. They text me when things break or when they'll be late with rent. I text someone to go fix the issues when they come out. Then I send them money after they fix things through cc, zelle or cash app. I try and keep it simple. And self managing saves me about 25k-30k/year in PM fees.

    0Reply
  • Bryan H.
    Member since 2021 · 53 posts · 26 votes
    2y
    Quote from @Andrew Syrios:

    No, landlording is not passive at all. Even if you have a property manager there's still a decent amount of work

    Depends on the property and location. I have a condo owned for 27 years. In the past 18 years it had been a rental,  I have been inside the property 2 times. Minimal  contact with my renters all that time.  It’s in a market that rents so easily to such high quality renters that when my previous tenants are leaving I pay them a $100 to have an open house for new renters. This has worked for me for about 5-6 turnovers over the 18 years it has been a rental and I’ve never had a bad tenant. So I have never even met most of my tenants. No major repairs in all that time either, though I did finally just have to remodel it after 27 years. Pretty passive for the most part.
    0Reply
  • Chad S.
    Rochester, MI · Member since 2014 · 88 posts · 50 votes
    2y

    @Terra Padgett

    I agree. It's not passive, but don't tell the IRS that.

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Julie Sisnroy the point we're trying to make is it's NOT the same as an IRA or 401k.

    Many people RARELY look at their monthly statements for those accounts.

    That same approach is NOT a good idea for investment property monthly owner statements.

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    2y
    Quote from @Bryan H.:
    Quote from @Andrew Syrios:

    No, landlording is not passive at all. Even if you have a property manager there's still a decent amount of work

    Depends on the property and location. I have a condo owned for 27 years. In the past 18 years it had been a rental,  I have been inside the property 2 times. Minimal  contact with my renters all that time.  It’s in a market that rents so easily to such high quality renters that when my previous tenants are leaving I pay them a $100 to have an open house for new renters. This has worked for me for about 5-6 turnovers over the 18 years it has been a rental and I’ve never had a bad tenant. So I have never even met most of my tenants. No major repairs in all that time either, though I did finally just have to remodel it after 27 years. Pretty passive for the most part.

     I'll grant you that it does depend on the property/location/tenant for sure. That being said, you're talking about just one property. If you're going to have multiple, there will be some work at least and definitely if you're managing yourself

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