The Context
New landlords often have the wrong idea of what it means to be a landlord. This is for a few reasons;
The old model is dead. The renters of today have higher expectations than renters before them.
Most renters start in an apartment before they rent a home which means the apartment industry sets expectations for service and experience.
The legal landscape and social media have permanently changed the landlord-tenant relationship.
Misconception 1: Your Mortgage Isn’t the Market
It’s normal to want to cover your monthly mortgage, but that’s not always realistic (especially if you’re on the west coast) nor is it the only reason to be a landlord.
Real estate ownership has so many more benefits than simply cashflow.
When you own a rental other potential benefits include;
Property Appreciation: The increase in value of the asset over time (often substantially outweighs negative money cash flow).
Depreciation: Tax benefits from holding the asset that can offset taxable income.
Amortization: The pay down of the mortgage with other people’s money!
Misconception 2: Property Managers Are an Expense
Yes, property managers cost money, but so do employees.
Employees are the most valuable asset in a business and if you have the wrong people, your business will fail.
When you become a landlord, you’re in the landlord business and you want to set your business up for success.
A property manager is your agent and your important partnership.
If you invest in the right one, it will pay dividends. Instead of thinking about the cost of a great hire, think about the problems a bad manager will cost you in the long run.
A bad manager will;
Overpay for repairs and maintenance
Offer inadequate tenant screening
Is conflict avoidant and won’t enforce the rules
Won’t know the market and under or over price your property.
This is just a small list of examples of what could go wrong or cost you.
Misconception 3: Repairs Are Bad
New landlords sometimes get frustrated with repairs. They see repairs and maintenance as cashflow problems or a sign their tenant is too hard on the property.
This isn’t true. Just like a car, homes need maintenance and repair. The difference between your car and your investment property is one APPRECIATES and another DEPRECIATES.
When you make repairs, you're investing in your asset. You not only benefit from the value added by the repair, but guest what? You get to depreciate your repair or improvement in many cases, and at the very least, expense it. That’s a win-win situation.
Misconception 4: It’s Just a Rental
When preparing a property for rent new landlords sometimes cut corners or don’t invest in the property up front like they should.
They think “it’s just a rental, why should I put money into something that’s only going to be damaged”.
That’s the wrong mentality and it’s not going to attract the type of tenant you want.
Good tenants who pay on time, follow the rules, and care for the property are attracted to properties in good condition. If you don’t invest in your property or treat it like a secondary concern, people will notice and take cues from your approach to the home.
Remember, you own a business now, the tenant is your customer, and customers have options.
Misconception 5: Your Manager Is Out to Nickel and Dime You
First and foremost, you need to know that your property manager has a fiduciary obligation to you. That means they need to put your interest above their own, so if you feel they are taking advantage of you, you need to ask questions.
With that said, there is a difference between being ripped off, and paying for services requested. When I hear someone say their property management company is nickel and diming them, I wonder what service they received that they don’t feel they should have been charged for?
Remember, your property manager, or their team has to make a living like everyone else.
Property management is complex and a wide variety of services don’t apply to every owner, which is why they are not part of the initial fee schedule. When excluded service requests arise, it’s fair and normal for owners to pay for those services.
Now, that doesn’t mean there are no instances where management companies charge for things that seem unnecessary or excessive.
To help determine this you want to ask yourself a few questions;
Did I request a service outside of the normal services provided?
Does this request require a person to do any additional work?
Is this charge in line with industry pricing and practices?
Do I, or my property solely benefit from this service or do other properties and customers benefit from the work performed?
These questions will help you determine if you are being nickel and dimed or if those expenses you flagged are just a cost of doing business.
Understanding these perspectives is key to being a successful landlord, and critical if you are working with a professional property management company.
