There are countless investors that want the fast returns. Just buy a rental property, sit back, and make money as a landlord. They think that just being a landlord will make them the riches they need to be financially independent. The tenant pays your mortgage, and you relax on the beach. You hire a property manager, set up automatic payments for rent to be deposited, and your mortgage gets drafted every month. All while you play.
Here is how to make that fantasy happen in reality
It is Not Your God Given Right to Make Money as a Landlord
The first thing you must understand, it is not your God given right to make money as a landlord, or make money in any business. There are high returns possible, and there are many investors that have gone broke chasing the dream. Understand, that to make money as a landlord, you need to treat it as a business. You need to do what it takes to create a profitable business. Businesses that lose money go broke. Businesses that are profitable, but have negative cash flow, go broke too.
You must have a plan, and work it. Hard.
No One Makes A Million Dollars
You must also understand, that very few people make a million dollars in real estate at one time. Or any venture. Even fewer that make a million at once as a landlord. You will make it like any other business, a dollar at a time, a million times over. A few dollars every month in cash flow, assuming you save or invest it, can lead to a large balance.
You need to negotiate with every vendor out there. Some will give you a better price, some will not. You need to understand the risks, and have a good risk mitigation plan in place. It is OK to take a risk, and long as you know your outside cost. If you are not prepared to spend that ‘risk’ money, do not spend the investment money.
If your risk is too much, you must be capitalized well enough to recover and try again.
Raising Rents to Make Money as a landlord
Everyone knows that you can just increase rents to pay your property bills. Or increase your lifestyle. After all, your tenants are in place. They hate to move. You like money. A perfect combination. You just need a new wheelbarrow to haul your money in.
Raise a $1,000 rent by $25 a month, you take in another $300 a year. After expenses, you are likely left with $200. Raise it $25 too high, and your tenant leaves and you are out $1,000 a month, maybe for multiple months. All for $300 a year.
Advertise your rental at $25 too much, and great tenants go to a better value. Only tenants that will not be accepted anywhere else will apply at your place. You fall into the trap and think all tenants are low quality as that is all you can attract.
When you take in a bad tenant, you can lose five years of profits, or more.
Mistaking Deferred Maintenance for Profit.
Roofs, water heaters, HVAC systems, driveways, windows, flooring, and even paint wears out. Often a landlord will skip a few things and see their profit soar. This may work OK for a short time, but sooner or later a large expense will present itself. A furnace goes out, you have to replace it. A City official says you need to fix your building to get a rental license, you are out of business if you do not fix the item. Leave a renter with a leaky roof, and they move out.
Make no mistake, if you are not spending at least 10% of your rents on either fixing things, or saving that money in a maintenance account, you should be. It may even be up to 20% of your rents on older properties. If you are priced a bit low, that 20% number could even be higher.
Vacancy Is Your Number One Avoidable Expense as a Landlord
You cannot reduce your mortgage payment, unless you pay it off. Attempting to reduce your property taxes in any significant fashion is generally futile. You cannot reduce your utility bills very much, and even if you could it would not be much in terms of total dollars. The same with insurance and any Homeowners Association dues. You can almost always reduce vacancy costs. Unless you have zero vacancy, that is an easy cost to reduce.
You can always increase demand by lowering price. This is true for any widget you are selling. Rental property is no different. If you do not maintain your property, a renter moves out. Bring in a sub-par renter, and you may have to evict. Price your rental too high between tenants, and you will be vacant for a longer period of time.
Bring in a bad tenant because you panicked and could not take the vacancy expense, and you will suffer greatly.
Price right, know when to adjust your price up or down, and keep your tenants happy.
Anyone can be a Millionaire
Here in the USA, anyone can be a millionaire if they have enough drive, ambition, fortitude and willingness to do what it takes to succeed. Never underestimate the ability to accumulate wealth here in the USA if you try hard enough. If you continually blame others for your lack of achievement, you will never achieve anything.
If you continue to look at yourself and think “I cannot do that because …”, you will achieve exactly that, nothing. Think of a different way, a different tactic, a different skill you already have, that you can leverage.
Show me a self-made millionaire, and I will show you someone who is not afraid to work. Show me someone who is not a millionaire, and I will show you someone who is satisfied with not being a millionaire.
There are some people that may have to work harder than others due to their own limitations, but it can be done. Pick a skill closer to your own expertise, do not rely on others to plan it for you.
Are you a millionaire? If not, what are the obstacles facing you? What do you think you need to do to become one?