The Biggest Mistake New Real Estate Investors Make
I'm not telling you to avoid rental investing, quite the contrary. Rental investing is how I've significantly grown my net worth. Rather I'm telling you to put your rental business on autopilot with a great property management company. Our turnkey investment company Morris Invest is fully managed by a few amazing property managers. I wouldn't be able to do it if I had to manage everything myself.
Becoming a landlord is the biggest mistake I see new investors make. I call it the Allure of the First Property Syndrome. Here's how it happens: A husband and wife own their first home, then they move to a bigger house and decide to rent out the last one. In order to save a few bucks they decide to play landlord. They convince themselves that it's easy because "our tenants are really great". And they say, "hey this isn't so hard". This is a huge mistake and here's why.
Chances are there's a reason they're looking to save a few bucks. Likely the 10% they'd spend on management services would eradicate any profit they'd make on the rental property. That tells me they didn't do their homework when buying and renting out that particular property. A smart investor will build in the 10% property management fee to their ROI or Return on Investment calculations. So it should never be an issue.
The second reason this husband and wife made a mistake is that they are luring themselves into a false sense of security. By believing the first rental is easy because "our tenants are really great" puts them on a collision course for a rude awakening when their next tenant is a nightmare.
I've seen this scenario play out time and time again. Investors buy their second rental property and they decide to play landlord again in order to save a few bucks. My wife made this mistake with a condo she owned in San Francisco. Instead of paying a property manager she received phone calls about leaky faucets and refrigerator problems in the middle of the night. One tenant even did massive damage to the property and she didn't even know about it. She never screened him properly.
My wife decided to save a few bucks. She also failed to do the requisite background checks and tenant screenings that any good property manager would do.
The third reason playing landlord is a terrible idea is that it is a full time job when performed correctly. You should expect to play the long game with your properties and that includes acquiring a few dozen rentals. What seems easy with one property quickly becomes a nightmare while trying to juggle 20 properties.
Rental investing doesn't have to be tough. Plan from the very beginning to hire a property manager and put your passive income on autopilot. Unless of course you want another full time job.