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I’ve got a confession to make: I’m a terrible landlord.
No, I don’t own a run-down apartment complex where people have to deal with poor living conditions. Quite the opposite in fact!
When we outgrew our old home when our fourth child was born, I kept the house intending to make some extra income by renting it out. I thought it would be easy money!
Boy was I in for a surprise…
As I found out, my personality just isn’t cut out for being a landlord.
But it’s OK! Because the lessons I’ve learned along the way could help you fare much better than I did. So today, I want to talk about how you might be able to tap into today’s red-hot real estate market to generate reliable income for your family!
The Problem with Being a “Nice Guy”
The first family I rented our house to looked good on paper. The couple had a new child, and the husband worked as a pilot for an airline. His income left him with plenty of cash to pay their rent and everything went well for a few months.
Then the pilot had an affair and left his family. The mom and her baby had no income. And of course I couldn’t put them out on the street.
So I let them stay in the house for several months while the divorce proceedings took place. And of course, I paid the mortgage out of my own pocket while they lived in my house.
Not a great first experience for this landlord!
The second set of tenants wasn’t much better.
Again, I rented the house out to a young family that had enough income with jobs that appeared to be stable.
But the husband lost his job and the family could only afford to pay for basic groceries and utilities with the mom’s income. So once again, I found myself paying the mortgage out of my own pocket with no income from my rental home.
I literally took a side job delivering wings that year, just to keep my own family’s finances intact.
In talking the situation over with a friend, I was told that I was being too nice.
“Zach, I hate to say it, but you’re just getting taken advantage of. Maybe this isn’t the best income strategy for you.”
My friend was right. I’m not cut out to be a landlord.
Fortunately, I now rent the property out to my brother who takes great care of the place and always pays his rent on time. Of course, I cut him an exceptionally good deal. But I’d rather get less income from the house and know that I can count on the check every month.
One day when my brother decides to move out, I’ll take an entirely different approach to being a landlord…
Better Options for “Nice Guy” Landlords
This week, I had a conversation with a friend who is in the market to buy rental property. He’s looking forward to generating passive income from property he owns, while watching that property increase in value over the years.
When I told him my story about being a horrible landlord, he laughed.
“I’m not going to be the one collecting the checks, Zach. And if someone doesn’t pay, I don’t have to be the one handling the eviction process.”
Brandon told me about a service — Roofstock — that allows you to shop for rental property in many different markets around America while helping you with the actual business of renting to tenants.
For instance, the site can help you find a property that already has a tenant in place, and tell you how many months are left on the lease agreement.
Roofstock can also put you in touch with local property managers who can take over the process of renting out your property once it becomes vacant. This is the type of service I could have used years ago, because I was too easy when it came to people’s stories about why they couldn’t pay to live in my house.
Deciding on managing your property with Roofstock will be different for everybody’s individual situation. But I wanted to pass the information along to you because it looks like the kind of opportunity that could really help you if you’re interested in generating income from real estate.
An Excellent Time to Own Rental Property
Despite my personal challenges with being a landlord, the rental business is actually an excellent way to generate income!
And today, the opportunity to make money in this area is especially good.
That’s because mortgage interest rates are actually declining. The Fed has paused its campaign of interest rate hikes, and some economic concerns are causing interest rates to fall.
Lower interest rates make it a lot more affordable to get a mortgage for purchasing property that you can rent out.
At the same time, demand for housing is picking up as a new generation of young adults looks for a place to live.
After the financial crisis 10 years ago, many young adults delayed moving out of their parents homes. A recent Barron’s article noted that about 15% of 25-35 year old adults still live with their parents.1
But now that unemployment has dropped to the lowest point in decades and wages are steadily moving higher, more of these young adults can move out.
This demand for housing has started to drive home prices and rental rates higher.
That means you might have to pay a bit more than you expected to purchase a rental house.
But this trend should continue as more and more adults move out and look for a place to live, which means you can charge higher rental rates — and eventually sell your house for a higher price — as the real estate market heats up.
So today, as you look for more ways to generate income, consider a rental property! Just don’t be a horrible landlord like me.
Here’s to growing and protecting your wealth!
Zach Scheidt
Editor, The Daily Edge
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1 How Your Kids Can Ruin Your Retirement — and How to Make Sure They Don’t
The post I’m a Terrible Landlord… But Even I Can Make Money in Today’s Real Estate Market! appeared first on Daily Reckoning.