Hmmmm…. does anyone really want to be a landlord? Or do they just want the rewards, positive cashflow, that comes with being a landlord?
I suspect the latter.
Landlording is a tough business. Yet, when smartly executed, owning income producing properties and being a landlord has some great rewards… and yes… almost all of them have something to do with that positive cashflow thing.
As our real estate market continues to shift, trying to find a point of equilibrium, it is becoming more and more obvious that we are going headed to the lowest homeownership rates since the 60’s. Along with this shift in the market are some great opportunities for anyone who is seeking long-term passive income — read that as positive cashflow.
What picture do you think most would-be landlords see as they head out looking for their first rental property? For many of you I bet the picture looked something like…
A nice 3 bedroom/ 1 bath, single family residence in a nice quiet area. You found the perfect tenant. Hard working family. Husband, wife, 1.5 kids. No pets. They live easily in YOUR property and there is very little maintenance. And… the cherry on top is the rental check that arrives in your mailbox each and every month.
Are you now, or were you ever this investor? My guess is if you say no, you are not telling the truth!
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So, what does it take to be a successful landlord?
I just got this question from a new investor the other day. He, like so many others, sense the opportunities and are ready to jump, but first wanted the Cliff Notes version of what it takes to be successful as a landlord.
Here are a few of my responses which I hope will help guide you as move forward as a landlord.
- It takes money to be a landlord. Not necessarily you money… but someones’. And you need reserves. Owning a rental property and receiving that monthly rent check is great until the furnace fails or that nice family clogged your plumbing for the umpteenth time.
- As as landlord you must run your operation as a business. Sounds simple doesn’t it? But by business I mean that as with any business there are many moving parts, and in the case landlord/tenant relationships, even more laws. You need to figure out what both the moving parts and the laws are, and implement processes and procedures to accommodate both.
- “You must be willing to evict a tenant in the month of December”. Yes, that nice family that you thought would be the perfect tenants just missed their October/November rent payment. What do you do? If you take action now, most likely you will be evicting them in December. Could you do it? If not…. DON’T BECOME A LANDLORD! Remember item number two above… you are running a business… not a charity!
- I used to own over 80 rental units. Today I only own 3. I can tell you that managing 80 units was much easier then managing just 3. Why? Because when you own and manage 80 units you are always in the game. Your mind in constantly in your business and you have developed the resources and team that can respond to any situation. When you own just 3, any time an issue arises you must stop what you are doing and focus on your rentals. It can be a pain in the butt. Based on the experiences of my clients I see the tipping point between having to shift into your rental business and paying attention to in everyday to be around 10 units. Once you have 10 units you, your systems, and your team are always prepared to manage as required.
- Don’t ever forget this one: no one, and I mean no one will ever manage your properties and be more concerned about the monthly cashflow outcomes then you. Where am I going with this? If you have to use property managers, spend as much if not more time screening them as you would a prospective tenant. It never ceases to amaze me how most property managers always seem to divert your monthly cashflow to their pockets. It is almost like magic… but it isn’t! Don’t assume anything with property managers and you should do OK.
- This should have probably been discussed first, but instead I will leave you with this item as the last one. The more thoroughly that you screen prospective tenants, actually something just less than a proctology exam should do the trick, the less hassles you will have once this person/family is your tenant. Don’t let you lack of cashflow contribute to poor decisions. Take your time and do this right and you will be thankful in the long run.
There are probably dozens of other suggestions that could be listed here… all helping you to become a successful landlord and I would welcome your thoughts based on your experiences.
Best of Luck!
BTW – For any questions about landlording, be sure to check out the BiggerPockets Landlord Forums