First Person: The Reality of Being a Landlord

While owning and managing rental properties seems like an easy way to make some money, for some people it may be more trouble than it's worth. Difficult tenants, middle of the night emergencies, unexpected repairs, and the high cost of owning real estate are a few of the reasons why being a landlord isn't always fun and games.

Let's start with costs.

There are certain expenses that landlords must cover. These include property taxes, insurance, trash & sewer (some landlords pay for water), irrigation fees, HOA fees, maintenance, and repairs on items that are considered "normal wear and tear."

Total costs will vary depending on the location of the rental; we'll use one of my rentals as an example. This is a property we had built in 2008 for $260,000 and converted to a rental in 2009. The property was secured against our personal home on a 30 year loan with monthly PI (principle, interest) payments of $1672.00 a month.

Yearly expenses for the rental:

Taxes $3200
Insurance $350
Sewer, water, & trash $600
Service maintenance (HVAC systems etc.) $200
Repairs $200 year on average. Because the house is new, repairs are minor.

Even when offset by a rental income of $1,100 a month, this property is costing us $951.58 a month. Fortunately, depreciation and write-offs help to ease the sting by lowering our tax debt.

Add in the price of tenant damage.

Back in the late 1980s, I managed a handful of rental properties that were passed to me from another real estate firm. All of them were extremely run down. A few were bad enough to be razed.

One of these properties had been occupied by a squatter who hadn't paid rent in nearly a year. Nine months and thousands of dollars in attorney costs later, the sheriff and I showed up with the eviction papers only to discover that the house had been booby trapped with half a dozen homemade bombs. Only slightly worse than this situation was the rental that had been turned into a Satanic shrine complete with blood splattered walls and a carpet completely ruined by hot candle wax.

The damage caused by bad tenants ran into the tens of thousands of dollars, none of which was covered by insurance. From this experience, I learned the importance of screening tenants, collecting sizable damage deposits, and being a hands-on landlord who inspects her rental properties on a regular basis.

The reality check

For new landlords, the reality of owning and managing rental properties is that it takes a lot of work for not much income. However, like any investment, the longer the properties are held, the more valuable they become which is why owning rentals can make sense, even if they don't bring in positive cash flow at first.