A friend recently admitted to me that she has started calling her rental home “Hawaii”. I asked her why and she said “I’ve spent enough money on that place to have gone to Hawaii with my entire family every year for the last five years. It makes me sick just thinking about it.” Like many in her situation, she received ownership of her rental home during a divorce settlement and decided to use it as an income property. It sounded like a good idea for a newly single mom: turn the extra property into a monthly paycheck instead of a financial drain, get to spend more time with her kids instead of working an extra job, and build a good nest egg from her available resources. Unfortunately, the dream of owning a rental home didn’t match up to the reality of her situation.
Do You Like Being a Landlord?
First off, it’s important to state that some people make a fabulous living renting homes, but it isn’t for everyone. Just because someone lives in a home doesn’t mean they’ll naturally be good at renting a home to others. No one would assume they could be a successful NASCAR driver just because they have a car, but a lot of people think that just because they’ve got an extra home they will automatically be good at managing a home rental business and all that it entails. For my friend, she ran almost every one of the standard issues every landlord deals with. Sadly, they all happened in a short span of time. Here are just a few of them.
- Expensive Repairs– My friend began doing a basic repair job on her rental home. Her plan was just to paint, put in new carpeting and vinyl flooring and call it good. But an inspection revealed black mold in a kitchen wall. It required a professional demolition and remodel. It was at least 4 times the cost she had anticipated and drained her resources instead of adding to them. This is a common problem with turning a family home into a rental. If you sell you can put that “as is” mark on your contract. You don’t have that option with a rental. There are laws regulating the condition of a home being offered as a rental.
- Flaky Renters– My friend was excited when she got her first renter into the home. They seemed like a great family, responsible and excited about the home. She had moved 4 hours away from the town her rental was in and didn’t have any landlord inspections of the home to ensure continuing good care. A year later, when the renters found a new job and moved on, she discovered that the happy sounding family who rented her home had lived more like college fraternity kids. The new flooring that had cost her so much had to be entirely replaced. The drywall was destroyed in one room, and the cabinets were stained and warped from water damage. The cost of repairs for the renters in the home almost completely negated the income she received from the year of renting the house. Inspections could have helped to prevent some of this damage, or clued her in early enough to keep it from becoming so extensive.
- Non-Payment– The next renter she found for her home was much easier on the house, taking good care of it, and leaving it only needing a new coat of paint to freshen it up. Unfortunately, that renter thought taking such good care of the house meant he didn’t need to make his payments on time or even at all on some months. For some landlords this isn’t a problem, but my friend was an easy touch for a renter that took advantage of her. Being a landlord means you must play the heavy sometimes, demanding payments when payments are due. Timely payments are what make it a viable business.
- Continuing Repairs– Landlords may not live in the homes they rent, but they are still responsible for maintaining the home. Water heaters, furnaces, air conditioners, stoves, refrigerators, plumbing leaks, broken windows, lost keys, etc., etc. The list of home repairs that must be done go on and on.
- Time-Consuming– The dream of having a job that doesn’t take much time but still results in a paycheck is everyone’s dream job. A rental is NOT that job. Being a landlord must be treated like any other business. It takes good accounting and customer service skills as well as proper time management and business management techniques.
Is Hawaii Waiting?
For some landlords, rental homes are their ticket to a Hawaiian vacation. They can bring in a reliable income and generate wealth. But for others, like my friend, her rental cost her those trips and the time she would have spent there with her children. If you’re wondering what kind of landlord you’d be, take the time to discuss your options with a successful property manager. Know what you’re getting yourself into before you jump in feet first. If you KNOW you don’t want to manage a rental property, do yourself a favor, sell your rental home to a reputable home buyer and take your family to Hawaii, Disneyland, the Grand Canyon, or any of 100 other wonderful destinations instead. Unless you’re wanting to make the rental business work, make some memories instead.