It’s not complicated. The cost of living is too high, and you realize that your employment income certainly won’t guarantee you’ll have the retirement of your dreams, so you become an investor. You have two options: the stock market or real estate. As the stock market fluctuates way too much and you don’t trust the major decision makers, and as you’re better with a hammer than a calculator, you’ve chosen real estate. It’s much simpler and safer.
It’s a simple formula, to make money in life, you have to own property. Let’s backtrack to the end of my last blog. You’ve flipped a house and the gamble paid off: you respected your budget and timeline. Now you have to sell your showpiece, but nostalgia has given you a lump in your throat. You put soooo much energy into this great project. The house has all the features you dreamed of and reflects the scale of your ambitions; your skilled hands installed all the gypsum with great care. You can barely think of selling it, but you also can’t live there. So you rent it to someone, which seems to be a good compromise. You rent it to someone who seems to love the cabinets as much as you do. Those cabinets that you carefully imagined, chose, installed….
I won’t describe your perfect tenant. It could be a charming young family; a medical student; a priest; a single, non-smoker with no children or animals, who doesn’t play music, and is well-off. In fact, none of these types of renter constitutes the perfect tenant.
Renting always entails a certain level of risk. There will always be a certain percentage of tenants who don’t pay the rent on time or who damage the dwelling. From an insurance perspective, a tenant who damages the house or apartment or who doesn’t pay their rent isn’t a risk that is covered nor is it insurable.
So this is the real peril in becoming a landlord. Beyond the possibility of receiving calls in the middle of the night for a pipe that has just burst (which, incidentally, is covered by all contracts), renovation requests, or any other unexpected issue in the life of a landlord, the fewer the dwellings, the greater the risk. Does this come as a surprise?
An informed landlord performs credit checks and background checks before renting a dwelling. This is likely the best thing that you can do to protect yourself, but it certainly isn’t foolproof. If you only own one rental unit, you have a slim chance of having a tenant who doesn’t pay the rent on time or who damages the dwelling. However, if you have the misfortune of picking the short straw, you’ll suffer a considerable loss of revenue and great expense to repair the damage to the dwelling. On the other hand, if you have a lot of rental units, you have the rule of statistics on your side. You’ll certainly have a bad tenant among your good ones, but the good will make up for the bad. It’s up to you to plan accordingly.
So, with this one flip under your belt, you should probably put a “For sale” sign on your dream of becoming a real estate investor. But you don’t have to listen to me, I may be overly cautious by nature.
In closing, if the stock market and real estate are too risky, your only option is to hide your money under your mattress. But this too is risky.