First Person: Is Investing in Rental Property Worth the Headache?

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Investing in real estate is a tried and true way of building wealth, and investing in rental property is useful if you plan to hold the real estate over time. Unlike a stock portfolio, however, with rental properties you have to deal with a number of people -- and headaches. Being a landlord isn't for everyone.

I invested in my first rental property when I was in my thirties. We lived in a university town so many of the townhouse condominiums were rental units for students. I purchased one with friends and our adventure as landlords began. Here are the lessons I learned the hard way before we sold the property.

The landlord is always on call.

Unless you have the money to keep a property manager on call 24/7, you are the property manager. This means that you have to respond to 3 a.m. calls about burst pipes and squirrels in the attic. Our property was in a jurisdiction with strict rental laws that outlined a landlord's responsibility for fixing things and what constitutes an emergency. It doesn't matter if the sink flooded because the tenant wasn't aware that the laundry tub drained into it and it was full of dishes. You'll still be the one knee-deep in water in the middle of the night.

The landlord's pocketbook is always open.

Landlords have to pay for most of the repairs necessary to a rental unit, whether caused by the tenant or not. You can take the tenant to court, but that can be time-consuming and costly. In the meantime, you will have had to make the repair anyway to protect the value of your investment. With a stock portfolio, you can only lose what you have already invested. With a real estate portfolio, you can lose more money in repairs to protect the money you've already invested.

The landlord is always wrong.

In states and provinces with strict landlord and tenant legislation, the tenant can get away with a lot and leave you holding the bag. They can break their lease for a number of reasons, leaving you trying to rent the unit out before you're stuck with a vacant apartment. They can take you to court for alleged infractions and force you to upgrade your property to their standards. In some jurisdictions, you will always be the bad guy, no matter how you treat your tenants.

Tenants can cause significant financial damage.

In jurisdictions where you are not allowed to take a key or damage deposit, tenants can cause significant damage to the unit and you will have to take them to court to make them pay. They can leave garbage strewn around when they leave that you will have to clean up. I have had tenants whose pets have urinated all over the carpet and destroyed it. Pursuing compensation can be expensive and difficult.

Investing in rental property can be rewarding but it can also cause headaches if you don't go in with your eyes open.

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