People love to hate landlords. But the simple fact is that landlords provide a needed service—perhaps the most needed amenity of all.
My partner and I have recently explored flipping raw land. One of the greatest temptations? We don't have to hassle with all the anti-landlord regulations and restrictions raging throughout the U.S. right now. Flipping land is profitable and free from regulatory headaches or entitled tenants. Yet flipping land is effectively pushing paper, with no larger societal benefit, while landlords get vilified even as they provide a crucial service.
Vilification aside, landlords face other real challenges that most novice investors fail to grasp. If you’re thinking about becoming a landlord, keep the following in mind as the hardest aspects of being a landlord.
Turnovers: Where 90% of the Labor & Costs Lie
The overwhelming majority of the work and expenses involved in owning rental properties comes during turnovers.
It starts with walking through the unit with the outgoing tenant to determine if they caused any damage that should be deducted from their security deposit. You have to send them a detailed invoice, breaking down all security deposit deductions.
Then comes repainting, recarpeting, and other property updates, followed by advertising the vacant unit. And then open houses, showing the unit, collecting rental applications, and screening tenants. This includes pulling background checks, contacting references and prior landlords, and verifying income and employment. Fail to screen applicants well, and you end up with bad tenants (more on them shortly).
After going through all that, you have to collect the security deposit and initial rent, sign a lease agreement with all legally required disclosures, and come full circle by walking through the unit with the new tenants for a move-in condition inspection.
Woof. It’s enough to make you reconsider buying REITs and ETFs instead of putzing around with brick-and-mortar investments.
Chasing Down Nonpaying Tenants
There's nothing worse than chasing down deadbeat tenants who haven't the slightest interest in paying their rent on time.
They may eventually pay some back rent to prevent you from completing an eviction. And then you go back to square one, sending notices, calling them, cajoling, bribing, threatening, and eventually filing in court again. Round and round you go.
Word to the wise: avoid this cycle through aggressive tenant screening. In my experience, there are exactly two types of people when it comes to fiscal responsibility. Some people take their bills extremely seriously as a matter of personal honor and would be mortified to miss one. Others never saw a bill they wanted to pay on time in their life. And you can tell the difference instantly by looking at their payment history on their credit report.
And yes, “stuff” happens in life, and people occasionally experience a true crisis like a job loss or divorce. But you can still read it clear as day in their payment history, as a sudden stretch of late payments followed by a return to on-time monthly payments. Isolated blips serve as outliers—the exception that proves the rule that it takes a true crisis to force fundamentally responsible people to fall behind on payments.
People who regularly miss payments, however, are another breed entirely.
High-Maintenance & High-Impact Tenants
Some tenants pay their rent on time but treat you, the neighbors, and/or your property badly.
They call at 3 a.m., complaining that a light bulb went out. They blare their music or TVs late at night, driving the neighbors crazy. Perhaps they leave their dog droppings all over the communal grounds or the neighbors’ lawns.
Or maybe they abuse your property, clogging the plumbing with flushed tampons then demanding that you pay for fixing it, scratching up the hardwood floors, spilling wine on the walls and floors. Others are just downright dirty, letting dishes and crust-strewn pizza boxes pile up. Roll out the welcome mat for the cockroaches while you’re at it.
Some people are just plain disrespectful. Avoid them at all costs as a landlord, but beware that occasionally they may slip through your screening.
Managing Contractors, Repairs, & Maintenance
Rental properties are physical, real-world structures, and as such, they require maintenance and repairs. New landlords all too often underestimate these maintenance costs, or even ignore them entirely in their cash-flow forecasts. Then, they wonder why they lose money year after year.
Even though these costs don’t hit you every month, it doesn’t make them less inevitable. From roofing repairs to flooded basements, dishwashers to dryers, everything that can go wrong in your rentals does so sooner or later. Every component needs replacing or repairing.
This wouldn’t be so bad if your brother-in-law happened to be an expert handyman, happy to drop what he’s doing at a moment’s notice to help you out at reasonable rates. Alas, that doesn’t happen in real life.
In the real world, managing contractors feels awfully similar to herding cats. To begin with, it’s hard to find reliable, experienced contractors and handymen who charge reasonable pricing. Make no mistake, there are professional contractors who show up on time for appointments and know their work well. And they charge a fortune.
Why? Because they can. Because their competitors show up a half-hour late (if at all), with no phone call to let you know. They fall behind on projects, go over budget, spring surprise expenses on you halfway through projects.
When we teach real estate investing, we warn that managing contractors is one of the hardest parts of being a landlord and investor. It takes an enormous amount of time and effort to painstakingly screen, hire, and manage contractors. Over time, through often expensive trial and error, you gradually build a network of good, affordable contractors. But it doesn't happen overnight, and you can expect plenty of strife along the way.
Regulation & an Antagonistic Public
When I hear shrill housing activists demand greater anti-landlord regulation, I fantasize about offering them a deal. They can buy and manage my properties in low-income neighborhoods, and if they still believe those regulations are fair after a year walking in a landlord’s shoes, then they can implement them without any objection from me.
Of course, that’s not how democracy works. Anti-landlord activists will never own rental properties, never provide rental housing to the public. Yet they drum up support for ever-heightened regulation because there are far more tenants than landlords. Besides, “The rent is too damn high!” makes for an easier rallying cry than, “Don’t alienate landlords or else middle-class people will stop investing in rentals, and you’ll be left with nothing but faceless corporate landlords.”
I no longer invest in cities or states with regulation that favors tenants. I no longer invest in low-income neighborhoods. And regulation like the CDC’s eviction ban are leading me to change my investing plans long after 2020.
Final Thoughts
Given the challenges that landlords face, it’s no wonder so many tired landlords sell off their leased properties and move their money to truly passive investments like stocks, REITs, private notes, and private equity funds.
I worry that ever-increasing regulation will drive away middle-class landlords. I’ve seen it happen in Baltimore City, where well-meaning investors get burned and sell out to either slumlords or corporate landlords, who know how to squeeze money out of even highly regulated markets.
One friend of mine there sold off all his urban properties and now buys exclusively in the suburbs of the surrounding county, which imposes less regulation. Another colleague stopped buying rentals entirely after selling off his portfolio for a loss.
I don’t want to live in a world dominated by corporate landlords. Do you?
By G. Brian Davis, Bigger Pockets
