Real Estate Investors – Are you a Landlord?
Anyone who is wealthy will tell you that you have to create passive income. Active income is working a job or a business where you have to be physically present to make money. It can make you rich. Passive income comes from investments that generate money for you, whether you are present or not. It can make you wealthy. Wealthy beats rich any day. Donald Trump does it, and why can’t you? But are you ready to generate passive income in real estate? Are you a landlord?
Investing in a commercial or multi family property can be a real windfall. If you find the right deal, and make the proper investments, there is still money to be made in them there hills. But too often, investors are not prepared for the reality of being a landlord. After the purchase, many investors run into unforeseen pitfalls. Preparation is the key.
Know your numbers. Before you buy your investment, calculate all your numbers. You should know your break even point. This is the point where your income surpasses your expenses. You should know which expenses are fixed, always stay the same, and which are variable, can change depending on use. You should know how much reserve you will need in case a tenant vacates or stops paying rent. You should know which expenses are higher or lower depending on the season, like heat. You can get free spreadsheets to crunch numbers on websites like askrey.net. Do not underestimate repairs or maintenance. Over-estimate.
Follow the money, honey. If you have been waiting for the price to drop on that building that has been generating a solid profit for years, stop wasting time. Why would an owner sell a solid income generator? Do you think that person is getting tired of making all that money? If they do decide to sell, they often ask a premium price. If you buy it at that price, then you won’t make any money. The money is in the fixer uppers. Like a business, you have to build a good investment. Find something that has upside potential, with some work needed. After you invest in repairs, and proper marketing you will have that solid income generator.
Have an exit strategy. When and how will you get rid of this property? Know how long you intend to keep this property and invest accordingly. If you intend to keep it forever, you can rent to tenants with subsidies, and rely on small government checks like clockwork every month. If you intend to sell again in the short term, then make sure your improvements contribute to market value, not to your ego. Make sure your tenants are paying market value rents. Consult your realtor. Don’t wing it.
Don’t just do it for the money. If money is the only reason you want to become a landlord, don’t bother. At the end of the day, you must enjoy your time on this earth. If you spend your whole life chasing a dollar and are miserable in the process, then you have wasted the precious time god has given you. Trust me when I tell you that as a landlord, there will be people lining up to aggravate you. There will always be an issue with a tenant, a contractor, a city official or a supplier to test your sanity. If you do not have the temperament to deal with it, do not take the plunge.
However, if you do, then stop wasting time and start making moves. Smart investors are snapping up good properties while you are “waiting for the market to get better.” Bad properties look bad, until someone makes them look good. That someone is a landlord. Are you a landlord?