Most landlords are done a disservice when they join the industry. They go to some big conference, read a few blog posts, or spend a week going down a YouTube rabbit hole, watching success videos of people who went from having no experience to making millions by investing in rental properties. As a result, they end up being duped into thinking real estate is easy.
So you buy a property and start having visions of big checks filling your checking account. But months later, you’re scratching your head, wondering why the profits aren’t as high as you expected.
Sound familiar? You’re not alone. Many landlords find themselves in this situation. So, let’s dive into why this happens and what you can do about it.
1. Not Understanding the Costs
Owning a property isn’t just about collecting rent. There are hidden costs. You have to think about repairs, maintenance, property taxes, and insurance. It’s like owning a car – you don’t just pay for gas. You need to budget for oil changes, new tires, and the occasional breakdown.
Just like a car, a rental property can (and seemingly will) fall into disrepair at the least convenient time possible. Whether it’s a leaky faucet or a broken heating system, problems add up and eat into your profits.
A lot of people make the mistake of using round numbers when evaluating an investment property’s deal potential. For example, they find a house that they can purchase for $220,000. The monthly payment (taxes, insurance, and mortgage) comes out to roughly $1,500. Rent in the area averages $1,800 for a property with these same specs. So they count on earning $300 per month in free cash.
Well, that’s all fine and dandy – until the AC unit and furnace go out, and it costs $8,000 to replace. Now that $300 in monthly cash flow – which amounts to $3,600 per year – goes to paying off the AC unit and furnace for the next two-plus years. And what about all of the other little expenses and issues that pop up over the next couple of years? Before you know it, your house that was supposed to generate $300 per month in profit is costing you money every month. This is the issue that a lot of first-time landlords encounter.
To be a successful real estate investor and landlord, you have to understand the true costs of a property – not just the taxes, insurance, and mortgage payment. Otherwise, you could end up on the wrong side of a bad deal.
2. Trying to Do it on Your Own
There’s nothing wrong with being independent and “self-built.” But even the most independent and self-built entrepreneurs rely on others to help execute their vision. Newbie landlords who try to do everything on their own typically end up exhausted and unprofitable.
The best thing you can do is hire a local property management company to help with some of the heavy lifting and day-to-day tasks that will take up your time. If you’re in Dallas, for example, hire a Dallas property management company that understands the area and can help you thrive. They will have the resources to manage and streamline all of the things that you don’t want to deal with (or don’t know how to do).
3. Setting the Wrong Rent
Setting rent is tricky. If it’s too high, your property might sit empty. Too low, and you’re leaving money on the table. It’s like selling lemonade – price it too high, and no one buys it. Too cheap, and you can’t cover your costs.
The key is finding that sweet spot where you attract tenants and cover your expenses, with a little extra for profit. Unfortunately, a lot of landlords get this wrong. As a result, they unintentionally kill their cash flow and don’t last long in the business.
If you want to be a successful landlord, you have to become intimately familiar with rates in your area and set prices that accurately reflect the demand for your property. There are plenty of resources that can help you do this, including Rentometer.
How to Find Your Success
Being a landlord can be profitable, but it’s not as easy as it seems. You need a plan and a strategy that’s based on reality – not some hypothetical dream that’s based on a fictional case study where the numbers always work out. By developing a strategy and avoiding the common pitfalls highlighted above, you can increase your chances of success. Good luck!
