Mike from Four Pillars and I recently went out for lunch and had a great time munching and chatting about personal finance. At one point during the meal I talked about how my brother wouldn’t do well investing in real estate as he would react quite strongly to tenant complaints. Mike thought this might be an interesting post, so here it is!
Investing in real estate has elements of investing and elements of running a business (which, in my humble opinion, is what accounts for the greater returns over more passive investments such as index funds). The business element that probably causes the greatest headache is the customers (your tenants).
Business take a range of responses to their customers. Growing up in a smallish town, the local merchants took the attitude that they were doing us a favour by selling to us (and I delight in watching them go out of business as the Walmarts and Home Depots have moved in). Some large chains take the perspective, against all evidence, that “the customer is always right”. The best perspective is right between these two.
People all have their own perspective and will get upset about and demand all sorts of crazy things. As a landlord, you have to be willing to look another upset, grown adult in the eye listen to their angry demands and be able to say “no”. If you can’t do this, the real estate business is going to get very expensive, you’ll pour money into your properties until you go bust and you’ll be miserable.
The alternative, to rule your tenants like a petty tyrant, is no better. If you’ve ever talked to a family who are trying to rent out a room in their house, it will quickly be apparent that they want the rent, but not the tenant. In Western society paying money to live in a property gives a person certain rights. Landlords who expect a feudal relationship are going to be sorely disappointed when they lose their first court case.
My brother isn’t cut out for landlording, simply because he doesn’t like fighting, and will quickly stop the discussion and walk away if the argument escalates. If he gets into a disagreement at a job, he’ll just quit and find another job (assuming its a fairly large disagreement). Landlording you just can’t do this unless you’re going to always give in to the tenants (bad) or refuse to even listen to their complaints (also bad).
I always think a “on call” type of job is pretty sweet. You sit around near the phone and watch a movie. If you get a call, you deal with the situation, if you don’t you get paid for just being available. Owning an investment property is like this for me. I feel like I’m getting paid $10 a day, and haven’t heard a peep out of my tenants for the last 2 months. Of course, when the emergency hits you’ll feel like you really earned your $10 that day, but on the whole I feel like I’ve been well compensated for the amount of effort my property has taken.
Grumpy landlords (those who don’t have the temperment for it) are a perfect example of a desperate seller. So if you’ve got into real estate and found its not for you (and are now eager to sell), give me a call and I’ll take the problem off of your hands!