Real estate as a passive investment. A myth.

Social media self-proclaimed real estate gurus keep pitching real estate investments as a passive income path. You invest your money wisely, sit back, and enjoy the cash flow.

But nothing is passive about the real estate investment life.

Starting with the pre-investment due diligence, where you need to; research the desired area, find an available property, get it inspected, shop for a decent mortgage, appraise the property, get a few insurance quotes, and eventually close the investment, to; hire a handyman to get the property rent-ready (or a contractor to renovate if needed), hire a management company, vet some tenants, and hopefully find a good match eventually, sooner than later.

How passive does this sound? And this was only the beginning…

Yes, the checks do start coming in, but in most cases, also a few (if you are lucky, ONLY a few) repair requests and notices every few months. Each repair notice requires that you will approve the repair quote, and it seems that when you take the time to carefully review each request, cheaper and better quotes can be found if you only bother to research for the right service provider a little better than your management company has…

So, so far:

  • Finding the property and investing – not so passive.
  • Renting the property and management – not so passive.

Moving forward to the lease end. When a tenant leaves, you need to have the management company inspect the property, and in most cases approve the needed fixes/renovations. These procedures take time. Time which (to you) costs money, as the property is vacant, mortgage payments, taxes etc’ keep coming in – but the management company, naturally, does not share the same time-pressure you feel. So, you need to push them. Emails, phone calls, texts…

In the meantime, your insurance renewal date just arrived, and your rate ‘surprisingly’  increased, which now requires researching for a new insurance vendor. Again, phone calls, emails, texts… ( This, by the way, seems to be an annual process you cannot avoid)

You found a tenant. Tenant moves in. A year later the cycle repeats.

So, to recap:

  • Finding the property and investing – not so passive.
  • Renting the property and management – not so passive.
  • Lease-end procedures and new tenant process – not so passive.

 

As a ‘bonus’, lets add some occasional scenario to the mix:

Tenant stops paying or pays late – and now you need to keep chasing the property management to make sure they are enforcing the rules they set in place for such scenario. If the tenant eventually pays, great (…) but if not, a long eviction process will start, in which you need to keep nagging to the property management and make sure they keep ‘pushing’, because time is money and you have a mortgage to pay…

To summarize – You need to know that you are in charge, yet not always in control.

Even if you hire the best property management company, you have to maintain overwatch, double verify everything you are being told, check your insurance policy regularly, double check your property management’s decisions and actions, make sure your escrow pays your taxes and insurance, read twice the inspection report and ask questions, make sure the property management is responsive after you approve a repair, and so on.

Your tenant is your client and if he/she are not happy, you will feel the repercussions later on.

I am not try to scare you out of investing in real estate, I just want to let you know that noting is really passive about it. It is not a full time job, or even a part time job, but it will require attention more often than not.

 

Related Articles

Responses

Your email address will not be published. Required fields are marked *