We’ve all heard the old adage of– “rent is simply paying off a mortgage for someone else.” or– “if you want to make some good money, buy some real estate, throw some tenants in there, and collect the rent.”
Well I’ve learned and researched a lot about real estate over the last few years. I’ve found out that it’s possible to make a decent passive income from real estate investments. On the flip side, there’s also a dark side to real estate investing.
What is the problem with using real estate as a passive income investment?
Expensive fees.
Mortgage fees, maintenance fees, property taxes, local taxes, rental insurance, and lack of tenant down periods. I could give you a whole list of fees and really depress you, but I don’t want to do that. Instead I just wanted any potential real estate investors to consider all of the costs instead of only looking at the monthly cash flow that comes from tenants. There is way more fees involved than a simple rent collection at the end of the month.
Collecting rent.
Sure showing up at the end of every month to collect your cash flow sounds easy, and even somewhat fun. I have to share the bad news with you that there have been many horror stories in regards to collecting rent. You can potentially experience tenants that want to avoid paying, tenants with a sad story every month, or tenants that flat out don’t pay their rent.
Okay I know a little hassle here and there isn’t so bad. Maybe I should stop being such a cry baby, right?
The thing is that the capital you invest in real estate can be invested in other areas that are more hassle-free and less hands on.
Tenants screwing you over.
Where I live there is a law where you can NOT evict a tenant between the months of October and March. What does this mean? Well it means that you’re stuck with a tenant living in your property that is not either not paying their rent on time or at all.
What if a tenant damages your property? You’ll have to take them to court. This is time taken away from your already busy schedule. You also run the risk of not winning the case or not getting the full value of the damages done.
There’s also the chance that you’re tenant just leaves the property due to a medical issue or goes out of the country (I know there should be a clause in your contract, but it’s going to be difficult to chase someone in a different country). You will be stuck without a cash flow for an undetermined period of time. Can you live without this cash flow? How will you cover the mortgage payments?
That’s all for me…What problems do you see with real estate as an investment?
Aside: Good thing for Passive Income Now and blogging, because without this I would have nowhere else to write about my infatuation for real estate.
