I often toot the idea of a rental property around here. I personally invested into a rental property and it now generates passive income for me. However, those are just my experiences. You can totally go wrong with investing your money into a rental property.
Recently a reader, Sean, left an interesting comment on rental properties compared to stocks:
Having a rental property comes with the fun of maintenance, emergency calls, and potential vacancies. Not to mention praying to God you find a responsible and clean renter. The leg work of finding a reliable blue chip stock may take some time, but I don’t see that being much different than researching a potential rental property or screening renters. Once you find a good stock you believe in, it can become a form of passive income. I also prefer how liquid stocks are compared to real estate. The real estate market may not be in a very good state when you need your money.
Does a rental property always make sense? Nope. You can crash and lose your money with a rental property. I wanted to look at what can go wrong with a rental property.
You find a horrible tenant.
Screening tenants is the same as screening applicants for a new job. Sure, everyone is great during the interview process. You just never know what can happen once the tenant is living in the property. My friend has a tenant that calls him for every single small thing.
Then there’s the other side of the horrible tenant– what if they stop paying? What if they just leave on you? These are all issues that you have to deal with as a landlord. Everything is in your hands.
A lot can go wrong with a property. If you are a handy man, it will be an inconvenience. If you have no hand-man skills, then you’re going to have to pay the big bucks to get these issues resolved and dealt with.
A few other common maintenance issues that could arise:
- Furnace breaks down.
- The plumbing doesn’t work.
- Electricity goes out.
I purchased a brand new condo so that I wouldn’t have to worry about upgrades. Many new investors will want to purchase an older place to fix up or a property that they want to renovate. The only problem is that these costs of upgrades can add up real quick. The next thing you know is that you’re spending far more than you expected to upgrade your rental property. You could make your money back in the future through rental income and appreciation, but it can be a setback at first.
As always, I’m open minding to both sides. As you can tell from earlier writing, I’m personally a fan of rental properties as a source of passive income. With that being said, I can definitely see the negatives of investing your hard earned money into a property. Anything could happen. You just need to know what you’re getting yourself into when you purchase your first rental property.