Hobby vs. Business: Do You Have the Right Mindset as a Landlord?

by | BiggerPockets.com

Now that we’ve got the “property management versus self-management” question out of the way, let’s zoom in on the world of self-management. Let me ask you a question: Are you excited for middle-of-the-night phone calls, sleepless nights, and profitless rentals? If so, manage your properties the way most people do, as a hobby.

If, however, you want your rental property experience to be different, you will need to be different.

The difference between success and failure as a landlord often comes down to the method used to manage those rentals. Is this a hobby for you? Are you just doing this “on the fly,” with no plan, direction, or purpose? Or is this a business for you, one you’ll run with efficiency, systems, and processes? If you chose the former, like most landlords, prepare for some difficult years ahead. But if you chose the latter, welcome to the world of property management!

Managing Tenants is a Business

This means you need a process for doing things. Yes, I know you didn’t get into real estate investing just to get back into the corporate world of systems and processes, but trust me, this is designed to help you work less and experience less stress in your management.

Let me tell you about one kind of landlord, and you can decide whether you’d enjoy this life.

The buzzing cell phone wakes him up at 2:27 a.m. He picks up the phone, and the tenant on the other end of the line begins screaming about how someone is parked in their parking spot. He tells the tenant he is sorry and says, “There is nothing I can do,” but the tenant insists. So he calls the other tenant upstairs, at 2:28 a.m., and asks them to move their car. They insist that they only parked there because the downstairs tenant was in their parking spot. But while they have the landlord on the phone, the upstairs tenant lets him know that although rent is due tomorrow, they won’t get paid until next week, so they’ll need another extension. He tells them to make sure they drop the rent off at his house next Friday, and it’ll be fine.

Related: 16 Illuminating Questions Landlords Should Ask Every Prospective Tenant

But next Friday comes, and the rent doesn’t show up. The landlord drive to the tenant’s place, only to discover that the lawn—which is the landlord’s responsibility—hasn’t been mowed in almost a month. The landlord kicks himself for forgetting again and makes a mental note to try to come mow the lawn on Sunday. When he knocks, the chained door opens three inches, and a pair of unfamiliar eyes stares out blankly. The landlord assumes this must be the upstairs tenant’s new girlfriend, whom the landlord didn’t know was staying there. Smoke billows out of the partially opened door, and it doesn’t smell like cigarette smoke. Her boyfriend isn’t home, she says, and she isn’t sure when he’ll be back: “Might be a few days.” The landlord asks her to ask the tenant to call and walks away shaking his head. He’s used to this.

On his way down the steps, he’s stopped by the other tenant, who again complains about the upstairs tenant parking in his spot too often. The landlord reassures him that he’ll talk to the upstairs tenant about this and try to fix the problem. The tenant also reminds him that the bathtub faucet has been continually running for months, and the landlord promises once again that he’ll come fix it soon. He just needs to wait for both tenants to pay rent so he can afford the new faucet.

As the landlord walks back to his car, defeated, he asks himself, “Is this really financial freedom? Is this really what I fought so hard for? Is this what I saved all my extra income to invest in?”

You are probably a bit depressed after reading this. Good! But you need to understand that this is reality for millions of landlords across the world. Defeated. Burned out. Broke.

Is This the Life You Want?

Of course not! The landlord in that story approached his business like a hobby, a side project, something he does when he finds time. He’s deep inside his business and can’t seem to get out. He’s fighting a losing battle with his tenants and losing ground every day. But if there is one silver lining to this story, it’s this: when this landlord goes bankrupt, and he most likely will, you and I will be there to get a great deal on his property, turn it around, and start managing it like a business.

Related: Should Landlords Consider Bartering and Doing Business With Tenants?

We’ll create office hours, have a system in place for parking, collect rent automatically, issue legal notices the day after a tenant is late, kick out bad tenants, move in great ones, raise the rent, hire the right people to do maintenance jobs, and work far less but make far more money.

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Treat Your Business Like a Business

If you can nail down that one basic principle and fully internalize it, you’ll be able to handle all these situations on your own because you will be in the right mindset.

  • Owning a business means creating a policy of how things are done—and sticking to that policy.
  • Owning a business means having rules—and enforcing those rules.
  • Owning a business means setting boundaries—and making sure others abide by those boundaries.
  • Owning a business means continually finding ways to become more efficient and profitable.
  • Owning a business means outsourcing the things you aren’t good at or don’t enjoy.
  • Owning a business means being productive and maximizing every second.
  • Owning a business means working on your rental business, not in your rental business.

How do you ensure you treat your rental business like a business?

Weigh in with a comment!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like... seriously... a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of "The Book on Investing in Real Estate with No (and Low) Money Down", and "The Book on Rental Property Investing" which you should probably read if you want to do more deals.

5 Comments

  1. Mike McKinzie

    Just be thankful it was only about parking. I have gotten calls in the early AM that my rental was on fire. Calls about a DEA raid. Calls that my rental was under fire from a street gang. And much worse. Your article is right on Brandon! I have run my own PM company and yet today, I hire a PM for all my properties, save one.

  2. Michael Steven Harris

    I’ve lived in some low rent social services places and the ones with standards and expectations have waiting list for tenancy a mile long, clean facilities, low crime, and no drug use. Then there’s the other ones where theft is rampant drugs commonplace and they have trouble getting tenants that follow the rules. Which would you rather run. Loved the article!

  3. John Murray

    Al my SFH rentals rent from $2200 to $2700 per month. I have 8 of them in nice neighborhoods. Seems the gangs and dirtbags must rent between $1200 to $1500 per month for a 1 bed apartment in a nice neighborhood and do drive by shootings in the $800 to $950 neighborhoods. What a world we live in!

  4. Ryan Murdock

    This is such a good article. Lack of systems and boundaries are the downfall of so many landlords – even many of the “successful” ones. I see so many property owners fielding “dumb” calls and texts at off hours that really aren’t even worthy of that owner’s attention at that time let alone direct communication – all stuff that can wait until normal business hours. Be prepared to deal with true emergencies 24/7 but that doesn’t mean you are open and accessible for any topic those same hours.

    A few small layers of distance between you and your tenants can go a long way towards establishing proper boundaries, and in turn, make you a better and more effective landlord.

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