If you’ve got the money to invest in real estate, it can be a very lucrative way to earn passive income, particularly in the form of rental property. Who doesn’t like the idea of money coming in every month that you don’t have to work for?
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However, renting out a property means stepping into the role of landlord — and this can involve being available and on call to tenants at any time of day or night, paying out money for constant maintenance and more. Depending on the kind of tenants you have, what started out as a seemingly passive way to earn income can actually become quite a lot of work.
We spoke to people who became landlords with the highest of hopes only to face some regrets. Here’s what they did, and what they recommend.
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Increased Demands
As an experienced commercial real estate broker, Matt Morgan, a licensed California real estate salesperson with IPA Commercial Real Estate, initially thought becoming a landlord would provide easy passive income. However, he quickly learned that successful landlording demands far more involvement than expected.
“After purchasing a small retail center, I struggled managing the day-to-day responsibilities and addressing tenants’ needs. Though the property generated income, the workload proved overwhelming and cut into time spent on my primary business,” he explained.
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Property Management
To reduce frustration, Morgan partnered with a property manager, who now handles tasks like marketing vacancies, screening tenants, collecting rent and overseeing repairs.
“While the management fees decrease profits, the saved time and reduced hassle are well worth the investment,” he said.
For new landlords, he highly recommended hiring a property manager, especially if lacking experience.
“Look for one transparent in their fees, responsive to issues, and focused on maximizing your returns. If a property becomes too demanding, consider selling to streamline your portfolio. Successful landlording requires keeping properties sustainable and profitable long term.”
A Lot of Logistics
The keys to making rental property work for you, Morgan said, are finding good tenants, keeping units occupied, and addressing problems quickly.
“Though being a landlord isn’t truly passive, by delegating responsibilities to a skilled property manager, the role can become manageable.”
He advised that you go in with realistic expectations.
“While rental income is appealing, sustainably landlording properties demands substantial time and effort. If unprepared for that commitment, hire help or reconsider becoming a landlord altogether.”
Tenant Screening Challenges
Becoming a landlord to generate passive income seemed like a decent idea, but Dave Roebel, the founder and CEO of Northeast Mechanical Services, Inc., quickly realized that the hidden complexities of tenant screening were overwhelming.
“I mistakenly undervalued the significance of carefully screening prospective tenants at first, which resulted in issues like late payments and property damage,” he said.
He solved the issue by contacting a tenant screening agency that performed extensive background investigations, rental history, in-person interviews and credit checks for him.
“This careful approach significantly increased the quality of my tenants, making managing problematic tenants less stressful. I encourage prospective landlords to make a significant first investment in tenant screening,” he said.
He considers it a “a little-known but essential step that can save a lot of trouble later on.”
Hiring experts who can easily manage the process is a good idea if it sounds overwhelming. This small investment can save you significant stress, money and time in the long run.
Seek a High Salary Instead
Jordan Grumet, author of The Purpose Code, thought that real estate would be one of his paths to wealth.
Over a five-year period, he and his wife bought four rental condos and managed them all by themselves.
“Although I originally enjoyed the process, I really started feeling the weight of being a landlord during COVID-19. One of our properties had a cockroach problem, another a rat problem. Although these were very nice buildings and condos, the hassles seem to never end.”
With a steady stream of minor problems, from rotting window casings to larger structural issues, he and his wife eventually sold three of their four rentals and cashed out.
“Our overall investment return wasn’t bad, but we would have done better with investing in the stock market with much less hassle.”
He said that if you make a reasonable salary, your time is better spent working at the job you already get paid for.
“We found real estate to be time- and energy-consuming. In the end, wasn’t worth it for us.”
While not everyone loves being a landlord, each person should do their research to see if it’s right for them. Many factors go into this kind of investment and luck may also play a part.
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This article originally appeared on GOBankingRates.com: These People Became Landlords, Hoping To Earn Passive Income: Here’s Why They Regret It
