Over the weekend, I had an epiphany. My wife and I were talking about our investments when I lamented that I wish I had the temperament for investing in rental properties, but… I just can’t handle dealing with other people’s incompetence.
And there, in a single sentence, I summed up the conflicted feelings about real estate investing that I’ve had over the years. Yes, real estate investing makes senses on a number of levels, but I’m just not willing to deal with the day-to-day incompetence of my tenants.
I know that this likely sounds both harsh and self-righteous, and I recognize that many (most?) tenants are responsible people but, based on discussions with friends, nightmare tenants aren’t as rare as you might think.
I’m talking here about tenants who are chronically late with their rents payments, who break their leases early, who damage your property well beyond the value of their damage deposit, etc. Of course, they always have a good excuse, but what’s done is done.
Sure, landlords have the option of pursuing legal remedies, but that’s both costly and time-consuming, and the legal deck is often stacked against the property owner.
There are, of course, other reasons not to be come a landlord, not the least of which is the late night call about the overflowing toilet (or whatever else goes wrong). While it’s possible to outsource the property management to mitigate these issues, that comes at a cost and greatly reduces the profitability.
This isn’t to say that real estate investing is a complete non-starter, but we’ll be sticking to REITs vs. individual holdings. This shouldn’t come as a surprise, since we do the same thing with stocks and bonds — i.e., it’s index funds all the way.