On Being A Landlord – “You have to buy the properties very cheap, at the bottom of the price cycle, just to insulate yourself somewhat from the inevitable costs down the road.”

This from Got A Watch at greaterfool.ca 23 Feb 2010 10:17 am -

“I have some experience in for-profit rental real estate, in fact I grew up with it, as my Dad was a landlord. I remember at a very young age going to “help Dad” do maintenance.

Being a landlord is like any other business. Some periods are good, followed by the not so good. You have to have enough cash and equity to weather the downturns, when “cash flow” is flowing away from you, tenants stop paying the rent then vandalize the unit, the Bank calls about how your equity is questionable and your loan might not be renewed, the furnace dies, the roof leaks, the wiring starts sparking, the tenant uses his unit for a growop etc etc etc.The same issues confront larger multi-unit properties, but the numbers are so much bigger. New elevators, repairing the parking garage, new boiler and piping – the costs can run to millions very quickly.

Which is why I sold all rental properties years ago, and would never go back to that business. You have to buy the properties very cheap, at the bottom of the price cycle, just to insulate yourself somewhat from the inevitable costs down the road. If you can put up with all the grief for 20 years, the tenants will have paid off the mortgage for you, and you will probably be dead from the stress by then or shortly thereafter. It’s a tough business, that looks easy to those who have never seen the wrong side of the business cycle. Hint: rents will fall as so many vacant properties hit the rental market, while consumers ability to pay is reduced, financing is tighter, while fixed costs don’t go down – and I am not even mentioning higher interest rates here. The only way to survive will be to have a large equity cushion that will enable cutting rents and cover the increased churn and vacancies.

Anyone who is claiming that their experience over the last 5 years, during the biggest Boom ever in real estate, will be repeated indefinitely into the future – go ahead, double down, buy some more real estate. Best of luck with that, you’ll need it.

Personally, I would rather dig ditches for a living by hand than be a professional landlord again. That reflects 50 years of family history in the business in. The day I sold the last property was a happy day.”

One response to “On Being A Landlord – “You have to buy the properties very cheap, at the bottom of the price cycle, just to insulate yourself somewhat from the inevitable costs down the road.”

  1. This is a great anecdote, and I really wish that real estate investors all had to listen to actual business people about what it is to be a landlord before they put money into rental investment.

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