The majority of people purchase rental properties to generate passive income. Income that comes in while you’re on vacation, having fun with your kids, cooking, reading, or relaxing at home by the fireplace.
Is rental income, after all, passive?
Passive income, in its purest form, takes no effort after the initial setup. However, some investments, such as income properties, necessitate ongoing maintenance. Even the smallest amount of effort is still effort.
How Rental Properties Differ
The first thing to keep in mind is that rental income differs. The specifics of the property you rent out will shape your landlord experience. Is it in a secure location? Is it appealing to professionals? How difficult is it to build? A simple design is easier to manage. And the materials are less difficult to replace. The public areas are less challenging to maintain and decorate.
Consider renting out a simple apartment in a booming real estate market. The tenants are likely to be courteous and require little attention. Consider renting out an old house in a high-crime area. More repairs, more property damage, more crime, and higher tenant turnover rates are all to be expected.
The more tasks you are assigned, the more time you will need to devote. Renting out multiple residential properties adds to the difficulty. Of course, you could hire a property manager to alleviate some of the stress,
In short, each landlord has a distinct set of responsibilities. Are rental properties a source of passive income? Some are content with “enough,” while others require constant attention. Instead, consider the difficulties you will most likely face as a landlord. Consider these challenges when deciding on a property to invest in to estimate your real estate investing workload.
Common Landlord Labor
Some landlords and real estate investors must work harder than others. The following is a list of their primary work-related activities:
Finding Deals
To begin with, finding good real estate deals requires effort. Of course, you can use a real estate agent to find on-market deals, or you can easily buy turnkey properties on Zillow Just don’t expect to make a lot of money.
You’ll most likely need to look off-market to find stellar deals with a cash flow yield of 10% or higher. Driving for dollars, mass mailing campaigns, purchasing foreclosures, and other more active strategies could fall under this category.
Then there’s the due diligence, securing investment property financing, and performing any necessary initial repairs. It’s all work, and you can’t take it lightly.
Tenant Screening
While it is possible to purchase a property with an existing tenant, most properties do not. It would help if you advertised available rentals and, at times, be proactive on social media.
This process requires time and effort, and you must then process each rental application as they come in. The timing may not be ideal: a prospective tenant may need to move in sooner or later than you would like. Offers may differ: someone may be willing to pay more to secure a spot.
Tenant screening necessitates effort and, at times, patience on your part. A potential tenant may appear nice and friendly, but there is no guarantee that they will remain so. A thorough vetting procedure is required. The following core tenant screening tasks are essential to complete:
- Validating financial stability. It’s critical to know if someone can afford to pay their rent monthly. You may require consistent and prompt payment. Even if you don’t, allowing a tenant to postpone payment sets a bad example. Checking bank statements and credit ratings is part of the validation process.
- Requesting and checking references. Your first impression of a potential tenant is essential, but you require more information. Requesting references and following up on them will provide you with invaluable information. What did their previous landlords think of them?
- Getting sign-off on house rules. You may have specific rules that you want your tenants to follow. You might live next door and prefer a quiet environment. You may be opposed to having pets in your properties. These are essential points to discuss before signing a rental agreement. Leaving them will only lead to dissatisfaction.
Finally, you should avoid tenants who have previously sued their landlords or go around badmouthing their landlords online. In today’s world, landlords must increasingly worry about reputation management.
Timely Rent Collection
When tenants fail to pay their rent, landlords must continue to make mortgage payments. In addition, you must pay for insurance, property taxes, maintenance, repairs, property management fees, and eviction costs.
However, some tenants will always push your boundaries. They feed you excuses and ask you to be patient with them.
In other words, don’t expect to sit back and watch the rent roll in monthly simply.
Could you make this a passive task? It is up to your tenants. You can rent out your property to people who pay on time and never cause any problems. Most bad seeds can be weeded out with aggressive tenant screening. The more investment properties you rent out, the more likely you will encounter issues.
Maintaining the Exterior
The appearance of a property from the outside may not be necessary to the current tenant, but it is always essential to their landlord. Tenants come and go, and they never treat your property the way homeowners do.
Potential tenants value first impressions. The more they like the places they see, the more eager they will be to rent them. A fresh coat of paint on an exterior wall can make a significant difference.
It’s worth noting that the building isn’t the only thing that requires attention. Outside, the grounds require maintenance to remain presentable. What problems arise will be determined by the house’s location.
You can refuse to do any of this, but if you keep your property ready while it is occupied, you won’t need to prepare it. There’s a good chance you can clean up the outside without causing too much trouble for the tenants. You can also request that they assist you with this, though there is no guarantee that they will. Whatever you choose, it will cost you both time and money.
Maintaining the Interior
Landlords are typically held liable for internal property damage. They can claim that the tenants caused the damage, but the tenants can deny this. It is frequently more effortless for them to get things fixed.
To save money, some real estate investors choose to do their repairs. You can take this approach if you’re good at DIY, but you’ll still need time.
Landlord Paperwork
Paperwork is the burden of any self-employed worker, regardless of their specific profession. Landlords are not immune. Landlords must manage a plethora of legal paperwork, from lease agreements to renewals and rent change notifications to eviction notices.
This is not to mention documents that must be submitted to regulatory bodies, such as rental registrations and permits. Regardless of how you mitigate it, there is much work involved.
Many of these documents can be created using online tools. However, you must still go over everything to ensure that it is ready. You must also keep up with changes in the law and make necessary changes when necessary. It’s yet another task to add to your long list of responsibilities.
Then there’s the paperwork associated with legal issues. When a tenant and their landlord disagree, legal action may be taken. The latter will be given more resources but also more responsibilities. This will make it more difficult for them to fight their case. It’s also an impossible situation in terms of public relations.
Could you make this a passive task? Yes, for the most part. You can hire property managers if you rent out enough properties to make a lot of money. If not, you can hire a property management company to take care of everything. The quality of the results will be determined by the amount of money you spend.
Conclusion
No, rental income isn’t truly passive in the traditional sense. You’ll always have tasks to complete, no matter how efficient your setup is. Even the process of locating rental properties necessitates some effort.
However, hiring a property management company like ProRealty would be the best option if you want to have more time for something else like a full-time job or spend more time with your loved ones. It will take off some of your stress and responsibilities as a landlord.
