Everywhere I go, I read about how real estate is the fastest path to wealth. Drawn in by this promise of easy money, I’ve read a lot about this subject. I read books, listened to podcasts and audiobooks, analyzed properties, worked with local real estate and banks to get pre-qualified — but in the end, I decided I didn’t want to be a landlord. Here’s a recap of what I learned, and why I decided not to pursue this “obvious” source of wealth.
My Landlord Experience
As mentioned in my My Reaction to the 2008 Recession post, my mom passed away back in 2005. At which time, I inherited her house — a huge 3/2 house with a 2/1 apartment out back. Throughout my childhood, she had rented out this apartment, and this rental income was one of the ways we stayed alive. In the ~20 years of renting it out, some of the tenants were extremely sketchy. I remember one mother/son pair that was evicted in the 90s due to not paying. When teenage Adam was cleaning out their apartment I found loads of razor blades and mirror – an obvious sign of drug abuse.
When she passed, I inherited my own tenant who had lived there for the past year. I already knew this tenant was often late on payments, and I wasn’t looking forward to dealing with them. They immediately completely stopped paying rent, leaving me on the hook for my apartment in Orlando, and my moms mortgage without the added help of the apartment. What was worse, is that I never was able to find the lease agreement, a legal document proving they had to pay to live there.
Evicting Two Tenants
After 3 or 4 months of not paying, I threatened them with eviction. In retrospect, I should have done that from the first missed payment. They cleared out all on their own after this threat, but a friend of theirs decided to move in without my approval or a lease agreement.
What followed was me trying to salvage a bad situation and collect rent from this new “tenant”. I was naive and didn’t know how badly I was being taken advantage of. Eventually, I called the police and asked for advice on the situation. They made it clear that these were squatters, and I could call the police and have them removed at any time — without needing to go through the eviction process.
I let them know this and gave them a date to move out by. At this time there was a couple living there, and another guy in his 20s. They even decided to have a bonfire in my backyard which ended up going 20ft high and burning the roof. Luckily before they could do any more damage I came by one weekend after the move out date and changed the locks. The next weekend I went back and cleared everything that was still there out and left it on the curb.
What I Learned
Boy was I naive about being a landlord. I had never heard the term “lease agreement” or “property manager”. I didn’t even think about verifying income to make sure the new tenants had the ability to pay, or the credit score to prove they were financially stable. Even more, I didn’t have other people or places to go that I knew could give great advice on this. At the time, this wasn’t even the biggest issue in my life – since I was still resolving my mom’s estate, which meant that I hadn’t yet been able to withdraw a cent from it.
What I would do differently now is ask for help! Find people in my life and just ask. Also finding a property manager and just asking them to solve this. Honestly, at the time any price they would have charged would have been well worth the lower stress.
I also learned how important it is to have legal footing to strong arm in these situations. If you don’t know what’s legal anything you say is going to be an empty threat.
My Homeownership Experience
I purchased my home in August 2007 (yeah, I know), for $293,000 with 20% down. We have since lived very happily in it. For the most part, I like having a home. Staying here year after year has been relaxing for the most part, aside from the occasional pipe bursting or roof leaking. The biggest drawback to me is the lack of ability to plan for expenses. Having a mortgage, insurance, and taxes is one thing, but there are soooo many other expenses that come up. A common statistic I see is to assume at least 1% of the house value will be spent in maintenance each year — which seems very close to our experience.
The time commitment of being a homeowner exceeded my expectations as well. Cleaning a large house (1,700 sq ft in my case), yard work and general maintenance are no joke. Mrs. Minafi and I have already started thinking about renting for our next location.
Update! In December of 2017, we sold the house and moved to Salt Lake City. A few months before we moved out, we were hit by the biggest hurricane Orlando had seen in a decade. That ended up swamping our bedroom in water and breaking a pipe in the yard.
It took us a few months to fix everything up, repaint a few rooms and relandscape the front yard. The price tag for these renovations and fixes was somewhere around $4,000 – a decent payout but it could have been much much worse.
We put the house up on the market in November 2017, just a month before we were set to move out of Orlando. In the first week, we received multiple offers and eventually sold it to a nice couple who work at the parks for $225,000. Since we paid $293,000 for it, we ended up losing $68,000 over 10 years (!). We put $60,000 down on the house when we bought it, so the sale price was pretty much the amount the initial mortgage was for.
What I didn’t know when I bought this house was that money is made you buy a house not when you sell a house. That is, if you buy for too much, nothing else matters – you’re going to lose money.
Revisiting the Landlording Idea
After about 2011 when things in my life started calming down and being a lot more stable, I started to think more about the idea of investing in real estate. Maybe I could take what I’d learned and put it to good use? I devoured days of the Bigger Pockets Podcast, read books about being a First Time Landlord or on Landlording in general. I started frequenting real estate message boards, started practicing breaking down investment properties (example 1, example 2, example 3). I daydreamed about owning 10 properties and what kind of cash flow that would bring. But when it was time to make the decision to purchase or not, I made a hard decision and said no.
Love the Research, Hate the Problems
What I learned from this entire experience was that I loved the research phase of landlording, but when I thought about a future where I was an actual landlord I was filled with nothing but dread. Even with a property manager taking care of the heavy lifting, being a landlord isn’t something I’d want to occupy my time. Being a homeowner has proven this – where basic problems in the house have gone unfixed for long periods of time – something that wouldn’t be possible as a landlord.
I thought about what my life would be like as a landlord. Spending time fixing other peoples home problems, and constantly worrying about things that could go wrong was not worth the benefit for me. I did the calculations and the tradeoff of cash for that additional worry wasn’t worth it for me.
The Question
What it all came down to was the question: How do you value your time? I couldn’t see a path forward with being a landlord and having it pay off with the amount of time needed that could be spent programming, learning something else, or spending time with my family and friends. The difference for others is being able to find a way to enjoy real estate and landlording – something I wasn’t able to do. I started to wonder – can a minimalist be a landlord? I see no reason why not, but only if it’s something you love that brings value and joy into your life. For me, it wasn’t.
I’m not ruling this out down the line though! I could see a situation making sense where buying a duplex/triplex and living in one unit while renting out the other one making a lot of financial sense, while not multiplying the work needed in the same way owning a standalone property would.
What about you? Do you invest in real estate? Why or why not? Would you want to be a landlord?
I started out married life in a mobile home, in Arkansas no less, because I reasoned that the payments were less than rent and I could sell it later and get all my “rent” back. That more or less worked out but because we bought a house before the trailer was paid for we decided to rent it out instead. Trailer parks are kind of the lowest common denominator when it comes to the people you end up renting to. Not that poor equals bad, but poor does equal not consistently being able to scrape up the rent on time. I had single mom’s and could not throw them out on the street. Some were just in tough situations and some probably were playing me, but either way it was a nightmare. We eventually sold the trailer for what we bought it for so it was a financial success but it never felt like it! I felt very lucky that I was able to determine being a landlord did not fit my personality without losing money. I went with aggressive saving and investing instead and found my way to early retirement without directly investing in real estate. Conversely one of my best friends now owns a dozen rental properties and he loves it, but he’s tougher minded than me when it comes to laying down the law.
You and I sound a lot a like! The tenant empathy side is soo tough. It sounds like you got the right education for the right price though! My education was still cheap compared to buying a house during the bubble that could’ve been an awful decision. I am in awe of people who can be landlords and love it.
I too agree that I don’t want to be a landlord… I had three rentals last year and tried to flip a house. A lot of headaches it is! I think there are a lot easier ways to invest money without having to invest large amounts of time and stress. It definitely isn’t passive income in my experience.
It’s really nice to see someone *not* insist buying investment properties and becoming a landlord is the one true way to financial independence. I would hate being a landlord too, I’ve heard too many horror stories about terrible tenants and about people assuming it would be easy to find a tenant and winding up on the hook for multiple mortgages.
Great post! I really wanted to become a landlord from all of the investment podcasts and literature that you talked about. But I didn’t realize how much work it actually would end up being between fixes and legal stuff. But I was pretty lucky in that I have pretty good tenants and they are pretty handy themselves so issues are minimal (so far).
It sounds like you had more than a lot of trouble when you started and I think if I had started without a choice, and had even half as many problems as you, I’d be out of the game. For now, the way I see it (from my humble one year as a landlord), for the total of 20 hours I’ve put in this year, the extra 20k I’ve earned is worth it. But, I’m also pretty early on in this journey where I value my time a little less and am very focused on the hustle. Talk to me in a few years and my tune might change considerably.
Hey! exactly I never was able to find the lease agreement, a legal document proving they had to pay to live there.
My first rental property was a nightmare. After reading Rich Dad Poor Dad, and several other books on investing, I was all gung ho about acquiring income producing assets. I have been an entrepreneur most of my life, but real estate was something I avoided until that period of my life. I ended up purchasing a 2-bedroom ranch and renting it out to a family member. Who moved out after the pipes burst due to her not having the heat turned on. Luckily, my dad can fix anything, so it only cost me about $700 in flooring to repair the damaged flooring.
After that situation, I rented the house out to a couple. I ran checks on them and everything, but it didn’t mean anything because they started out of the gate with late payments. I had plans to move to Texas (I’m from Indiana) within a couple of months of renting it out, and payments stopped completely at that point. I was not in any financial condition to deal with such a problem from afar, and they took advantage of that until my mom, who still lived in Indiana, stepped in and saved the day.
Now, I have a relative living in the property once again; paying only the mortgage. It’s certainly not the plan I had, but at least I’m not footing the bill for someone to live their for free. Eventually, I’ll either rent it out, sell it, or live in it if I decide to move back to Indiana, which at this point in my life is a real possibility since I’ve been laid off since April, and haven’t had much luck with the jobs seeking process.
On another note, I am dipping my toe back in real estate with a business partner. Not the rental business, but real estate wholesaling, which involves none of the risks I encountered in the landlord business. It’s still new and scary, but my business partner has experience, which helps settle my nerves some. I’m an entrepreneur, with a can’t stop, won’t stop attitude so I would not let that bad experience stop me from trying other real estate opportunities. I may even try renting again some day, just no time soon.
Thanks for sharing your story Michelle! When all we watch are successful flippin TV shows or all we read are the real estate success stories it can glamorize it for new people getting into it and give them an unrealistic look at what most people experience.
Sounds like you went through (and are going through) a lot for sure. Having it be at least cash-flow neutral is a good step – and more than I ever accomplished when I was a landlord.