Why Being a Landlord Sucks and What to Do About It

being a landlord

Being a landlord sucks.

Shortly after I started, in 1996, I found this to be true.

Now, I’ve gone to the Mr. Landlord training

I know how to operate efficiently… that’s really not the issue.

Here’s the problem with being a landlord

Market rents are the problem.

If you plan to do business as usual, then you will be limited by your local market rents. Meaning you’ll be limited by your neighboring landlords and limited by the prosperity of your local job market.

And since there’s always something that needs repairing or painting… whatever comes in flows back out. And that just sucks.

Yes, your rental can have a positive cash flow, but if you properly maintain it, there won’t be much left over. That’s the story when you’re working with market rents.

You can be the most skillful landlord on the planet and still not make any money!

And if you don’t save for a new roof and/or water heater, you’ll end up relying on your credit cards. Or worse, you’ll get accustom to a poorly-maintained rental that eventually only attracts sub-par tenants.

What a death spiral!

You make money when you buy

For a traditional landlord, the old adage rings true: You make money when you buy.

In other words, you should NOT expect to make money until you sell. The best you can hope for is to pay down your mortgage and sell high.

As a traditional landlord, you operate under a low profit ceiling amidst a lot of competition. Your local market limits how much you can charge. And if you serve regular people, who have regular housing needs, you can only earn the meager profits that the market gives.

Why strive to own a lot of rentals

Truth be told, there can be a trickle of income. And if you collect enough rentals with trickle cash flows, you will get to critical mass. I call that the Walmart approach; lots of volume – thin profits.

But, make no mistake, that approach requires a lot of resources and comes with a significant annual maintenance costs.

However, owning lots of rentals is a well-established path to financial freedom. No question about it!

A New Opportunity: A New Path

I’d like to point out you to there’s another path. One with a lot less risk, fewer mortgages and less need for employees.

The path looks like this:

  1. Buy a rental with a positive cash flows.
  2. Become an excellent landlord; learn the craft.
  3. Move past traditional landlording and focus on serving markets with higher profit ceilings (this is where I can help you the most).
  4. Once you’ve developed your opportunities, buy more rentals.

Every rental has a potential to operate as a dormitory, hotel alternative, or for corporate housing. And each of those modes has its own profit ceiling.

The trick is to find a mode where more money flows in than flows out – while keeping a good maintenance program and funding your reserves.

And this, my friend, will lead you to conclude that traditional landlording is good but NOT sufficient.

No Change Unless You Change

Being a landlord is not the best option anymore.

Now you can do do better than just breaking even.

With today’s technology, you can make money when you buy AND while operating in a non traditional way.

You simply have to break out of the traditional mold. And that’s the main reason to follow my blog.

But what do you think?

Do you believe you can be bigger than a landlord?

Leave a comment for me below.

4 Responses

  1. EUNICE DEAN

    Interesting article and very timely! I’m not a landlord because of my fear of the landlord’s tripartite which is tenants, toliets, and taxes! The article offers a glimmer of hope for landlords who refuse to be boxed in by market rents.

  2. I see that you no longer seem to add special needs housing (taught by Nick Sidoti & which you also blogged about a couple of years ego) as a viable option in which to substantially increase cash flow. Am I to assume that this strategy is no longer viable ?

  3. Al Williamson

    Hi Ike. Sidoti’s option is viable. I lumped it into my dormitory category. By that I mean housing within a peer group. Great question – I’m a HUGE fan of the concept. I believe it’s a solution to ease gentrification and other housing problems such as: senior housing, transitional housing, veteran housing, etc.

  4. Al Williamson

    Thanks for commenting Eunice! The problem with your tripartite is that you might not be able to afford them as a traditional landlord. When you operate under a higher profit ceiling, you have the capacity to make significantly more net income than a typical landlord. So where as a status quo landlord would only break even – dorm operator, host, or housing service provider would see their bank account balance increase. Operating under a tight margin is a Walmart strategy – you need volume.

Leave a Reply

Captcha Captcha Reload