I am looking at REI as a way to generate passive income on the side.( I own a successful business that I love). I have been reading a lot and studying a lot for the last year and a half. My question is this. Many of the books I read are promoting this as a means to passive income. But owning rentals also looks like a lot of potential work. How “passive” is this method of investing. Could any of you share your experience with regards to how much work load having rentals adds to your lives? Are management companies the answer? What have your experiences been with them?
I am a single parent with two school-aged children and a full time 9-5 job. I manage a hand full of my own properties and I let a property management company handle the others. I get a phone call about 2 times per year from each of my tenants. I guess it’s just a matter of whether you want to be a landlord or an investor. Your decision about which one you would like to be will drive your passive income. So why not just let it. Let your decision about who you want to become drive the passive income and don’t let the passive income drive the decision.
I think that if you start with a good team, and you do the right things. RE can be an automated businees that can`t cost you more than 5-10 hours per week.
Thanks for all
I definitely don’t want to be a landlord, although I would do some for a while to learn the ropes.
What things do you look for in a management company? I assume that there are many different arraingements and levels of management? How does it generally work, you buy the property, turn it over to the management company, and then get a check sent to you every month(hopefully)?
if you want something thats truly passive, consider a REIT. thats like a stock.
or if you have sizable amounts of cash, you could consider a TIC.
basically a group of poeple get together and buy an office building or mall.
outside mgmt manages the property for a fee or a % of profts. the cash on cash returns
are usually 7-8% and the property is leveraged with a 50-60% loan. buyins start at
25k, but usually are around 150k.
or if you’re like me, you can do 100% financed single-family homes and put lease-option tenant buyers in. the tenats are responsible for all maintenance and repairs. this is less work than landlording but is not passive at all.
real estate is only passive from the IRS’s standpoint. in reality its a lot of effort, but very rewarding, very interesting and a lot of fun.
As far as locating management companies you may want to try getting referrals from people you know. If an agent is selling the property to you, that agent may be a good place to start. The typical fee that you pay a management company may be 6 to 10% of the total monthly rental income. Ask them if they will find a tenant for you (for a fee) without managing the property. That way you can still manage it yourself but won’t have to bother with screening tenants, showing the house, fielding phone calls and all that. Some management companies will handle maintenance calls for you and nothing else and they will charge a mark up on the cost of the repair work. So ask if they have a program like that if you don’t want to field maintenance calls. If you want to gauge how your time would be spent if you did the manamgement piece yourself, consider that the most time that you spend will be during that time of the year when the turnover happens: when a tenant moves out & you have to get the house ready so it can be rented again and then showing the house. Some management companies will do all of it for you or they will do parts of it for you if you ask. Go through the neighborhood in which you own the rental property and look at the “for rent” signs posted by management companies. Then call that management company. Find out what services they offer. Starting out by self managing may be a good idea. I just know that you happen to have a business that you love so I’m trying to offer some other ideas about how you can make the investment work for you as opposed to you working for it. The amount of time involved in managing your own property is in direct proportion to the number of properties you own. Some other variables come into play. But for the purposes of this conversation we’re talking about investing for cash flow and not investing as a career, which is rewarding but a little more involved.
owning rentals requires a few hours week
use a property management company. look for one that has a very good “pipeline” of tenants. also they should give you itemized billing and handle ANY tenant issues like repairs, screening new tenants, etc. The company I use has $200 authorization for repairs without calling me; they do NOT mark-up the cost. I pay 10% and a couple hundred on placement, but its truly full service. I like this since their interest are aligned with mine (they get paid when money is collected). Some firms will try and front-load the placement fees (like one months rent). This is bogus in my opinion. Use referrals for this and make sure they are commited to property management.
Ask lots of questions and know what you’re paying for.