When I first started thinking about buying my first investment property the statements I heard from others seemed to be on one extreme, or the other. Some comments made me doubt my decision while others made me want to get started YESTERDAY. It wasn’t until I found a mentor and experienced real estate investor that the advice was more grounded, real and experience based.
These are the 3 most common comments I heard (and still hear) and… they just aren’t true.
Myth #1: Rental Income is Passive
To me, passive means NO INPUT or WORK or EFFORT. So when people say to me: rental income is passive - this is saying that you get to deposit rental income into your bank account without any effort. In my opinion, whoever refers to rental properties as “passive” are not landlords. When you purchase a property you will require a downpayment, this lump sum will either have to be hard earned $ saved by yourself or acquired from an outside investor/partner. Accumulating these funds may take awhile + will not feel “passive”. Getting a tenant is not something that is “effortless”. It requires applications, credit checks, viewings, no shows, saying no, going through the lease, etc. Then once you get tenant, you will need to interact with them. Develop a relationship and rapport with them. Maintain the building. Do your bookkeeping/taxes. There are so many facets that landlords must consider, and if you are in the business of making money - passive is not the strategy I would advise.
Myth #2: Tenants will wreck your property
I’ve been a renter. I want to live somewhere nice. When I live there I think of it as “my place”. I don’t want people to come over and think I live in a dump. Yes, there are people who have lower standards of living or aren’t concerned with the state of their surroundings… but just like you wouldn’t drop your kid off at any adult’s house - you need to screen + trust your tenants.
Myth #3: You can’t lose. You will get monthly $ + the property will rise in value
Careful here. This is either advice coming from someone who has been investing in an “up” market, isn’t a real estate investor, isn’t paying close attention to their actual numbers or is just plain lucky. Not every rental property is a winner. You need to not only do your due diligence at the time of the buy (in terms of offer price, rent estimates, repair cost, etc.) but you also have to treat your rental property like a business. Not just collecting the rent payment but keeping up with the expenses, comparing them to prior years, watching for inefficiencies to help cut costs, and evaluating your overall investment portfolio + monitoring their rate of return.
If you are trying to find your first income property + are hearing these things, just be sure to filter the advise you are getting. Check out this BLOG POST. It has some tips for getting started.
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