I have a love-hate relationship with owning rental property.
On the one hand, my rental properties are one of the main reason why I had the confidence to leave work behind. On the other hand, my rental properties are my main source of investment stress.
Whenever there is a tenant issue or a maintenance issue, my mood sours. Weird situations always arise that are hard to predict.
To counteract this change in mood, I've had to change the framing. Instead of seeing my rental properties as a source of passive income, I now view them as having a part-time job.
As a fake retiree, it took years for me to accept this mental shift because it felt like going in reverse. But the shift has made a positive mental health difference whenever I need to spend time dealing with rental property issues. Now when issues arise, I no longer feel as stressed because it's just a part of the job.
Let me share an example of why I hate being a landlord and an example of why I love being a landlord. Then maybe you can better decide whether owning rental property is right for you.
Why I Hate Being A Landlord: Random Stressful Issues
In August, I had my sister and boyfriend come to visit from New York City. They stayed at one of my rentals that used to be our old home. The ground floor is vacant, which I use as an office and as a place to stay for friends and family. The upstairs is rented.
Supposedly, when my sister and boyfriend came in that night they forgot to lock the side door. Or perhaps it didn't fully latch. They thought they locked it, but there's no proof that they did or did not. Not a big deal 99.9% of the time.
Unfortunately, that night, a burglar went in and stole the upstairs tenant's $3,000+ bike from the garage, which wasn't locked to anything. The security cameras somehow didn't pick up anything. So there is also no proof a burglar stole a bike.
The garage is a common area meant for a car. But my tenants use it as storage and put a lot of valuable stuff there. We're talking a bike, skis, furniture, new tires, and more. When we used to live there, all we had in the garage was our car and paint cans.
Am I responsible for the thief's actions? Debatable. All I did was provide my sister and boyfriend a place to stay for a week instead of them having to pay $300+/night at a hotel. My good deed backfired.
Luckily my tenant had renter's insurance, which I require for all tenants. The bike was 100% covered by insurance. Hooray! He got a new bike. But then my tenant asked me to pay for his $500 insurance deductible.
Different Philosophies On Responsibility
At first, I was taken aback because I didn't feel responsible for a thief's bad actions. If a thief stole something of mine from the garage because my tenants left the garage door open accidentally, I would just chalk it up to bad luck. It was my decision to leave things in the common space. Further, I've always paid my insurance deductible when something unfortunate happens to me.
When I was a tenant, there was a ceiling leak that leaked onto my laptop all night. What are the chances?! The leak ended up destroying my laptop so I filed a claim, paid the deductible, and got a new one. I didn't ask my landlord for money. I just chalked it up to bad luck and moved on.
But I realize I've always had an independent personality. I readily accept bad luck as a part of life. Nor do I like to rely on anybody for help.
I have written articles such as The New Three-Legged Retirement Stool: You, You, And You and Financial Dependence Is The Worst, to explain the importance of not depending on the government or others for your financial future.
I certainly would never ask anybody for money. It feels icky, especially if I have enough to cover unforeseen circumstances.
The thing is, not everybody thinks like me. Owning rental property makes you respect other people's points of view. Good landlords are flexible and compromise.
Instead of making a fuss, I offered to split the cost of the $500 deductible. My tenants, who make over $300,000 a year agreed. It was important I stand my ground because what if something else is stolen in the future? There needs to be skin in the game.
We made lemonade and discussed ways in which to bolster the property's security system. Safety trumps all issues. I also told my tenants that I will not be responsible for future thefts in the garage and they agreed.
Finally, in my future tenant lease agreements, I will explicitly include a clause that states tenants are responsible for their property in common areas. I thought this was standard, but apparently not.
Funny enough, one security measure we agreed to of always locking the side door to the garage is not always being followed. About 25% of the time I come over and the door is unlocked.
Another time I stopped by and the tenant's house and car keys were left in the front entrance for all to see! Good thing I was there to take them out and notify them. Otherwise, what other mishaps may happen?
You can see how having to deal with these inconsistencies can be a real pain in the ass. Alas, such issues are part of the job of being a landlord.
Why I Love Rental Property: Fewer Exogenous Variables
Now that I've shared an example of why I hate being a landlord, let me share an example of why I love owning rental property.
Almost three years have passed since the pandemic began, yet China is still going through COVID lockdowns. The country has a “zero COVID” policy, yet their COVID case count is surging to all-time highs. As a result, the government is barricading citizens in their condominiums and setting up quarantine camps.
If you want to appreciate your freedom, spend time on social media checking out the videos and pictures of the Chinese government's crackdowns. Here's a milder example below.
Given the intense crackdowns, stock investors are now worried about rolling supply chain issues. After all, if people are protesting in China, who are going to make our iPhones, Nikes, and many other goods?
The S&P 500 recovered from an October 2022 low of 3,577 to 4,030 on November 25, 2022. Equity investors were feeling hopeful the Fed won't ruin the world thanks to clear signs of moderating inflation.
Unfortunately, once the world recognized China's dire COVID situation, stocks sold off once more. Thankfully, on November 30, Jerome Powell finally indicated the pace of rate hikes may slow.
Stock Investors Have No Control Over The Future
Being a passive investors feels great when your investments go up. But sometimes you feel hopeless and just want to do something when your investments go down.
If you are an active investor or have the majority of your net worth in stocks, the situation in China may be maddening. Just when you thought stocks turned the corner, another exogenous variable outside of your control rears its ugly head.
What's next? The invasion of Taiwan? A terrorist attack? A uncovered Ponzi scheme that goes unpunished due to huge political donations? Another COVID mutation? The number of exogenous variables that can negatively affect stocks in the short term are endless.
China may never ease up on its zero COVID policy. As a result, global stock investors will always be at the mercy of how many people the Chinese government decides to round up.
If a citizen journalist so happens to capture a video of a Chinese policeman in a white hazmat suit beating up an old lady for wanting her freedom, stocks may sell off again. It looks like all the protesting has made a difference. On Dec 5, 2022, the Chinese government is starting to relax COVID restrictions.
I'll still always have at least 25% of my net worth in public stocks due to its 100% passive nature and historical performance. However, stocks are not my favorite way to build wealth due to its volatility and lack of control.
More Clarity Investing In Real Estate
With real estate, there are no supply chain issues or endless exogenous variables to worry about. In fact, severe COVID restrictions actually helped rental property owners because more people demanded and appreciated housing. During times of uncertainty, the demand for real assets go up.
Most of the time, all I have to do is make sure each rental property is in good condition so that my tenants are happy. When random situations pop up I get them resolved in as efficient a manner as possible. So long as my tenants are compliant with the lease terms, life is good for both parties.
Yes, I have to pay attention to interest rates and the strength of the local economy. A natural disaster or accident could occur, which is why I have homeowner's and auto insurance. And sometimes the government passes detrimental laws against real estate. But for the most part, if you screen your tenants well, real estate provides more clarity and peace of mind.
Without any daily updates on a rental property's value, a landlord can just focus on operations. The long-term combination of paying down principal while seeing property appreciation is a powerful wealth generator.
I also realized another positive about being a landlord. With each rental property issue, if you have children, you can create teachable moments for them! Once I realized this benefit of being a landlord, I no longer became as agitated whenever problems occurred.
Related: Real Estate Or Stocks As A Better Investment
Find Your Ownership Limit And Then Simplify
These random issues that keep occurring for landlords are the main reason why I am no longer buying rental properties. I self-manage three rental properties in San Francisco. But that's all I can comfortably handle. If I were to buy a fourth rental, I’d probably hire a property manager.
Since we bought our “forever home” in mid-2020, all new capital allocated to my real estate bucket is invested in 100% passive private real estate. Give me the income and stability of real estate without having to do any work!
Follow the simple wealth-building strategy of buying a primary residence to get neutral real estate. After 2-10 years, rent out your home and buy a nicer primary residence. Repeat this process in your lifetime and you'll build a healthy rental property portfolio to take care of you in retirement.
Discover your rental property ownership limit and do not surpass it. Because once you surpass your limit, your rental properties will bring you more dismay than joy.
Sticking to an appropriate asset allocation based on your risk tolerance, age, time, and goals is important. This way, money will seldom ever overtake your life so you can do more of what you want.
Reader Questions And Recommendations
Readers, do you have a love / hate relationship with owning rental property? What are some of the things you appreciate about being a landlord? What are some things you hate about being a landlord? What's your rental property ownership limit?
To invest in private real estate passively, check out Fundrise, my favorite real estate investing platform. Fundrise invests predominantly in Sunbelt single-family and multi-family homes, where valuations are cheaper and yields are higher.
To get an affordable homeowner's and auto insurance policy, check out PolicyGenius. You can compare real, free quotes in minutes.
For more nuanced personal finance content, join 55,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
41 thoughts on “A Love-Hate Relationship With Owning Rental Property Real Estate”
Sam – long-time follower, first-time poster to comments. I am curious about your thoughts on real estate in cities like San Francisco, where there has been a lot of news on progressive policies, homelessness, violence, and so on. If one looks at Chicago as an example, a number of companies (Citadel, Boeing, etc.) have left. I own a home in one of these more progressive cities, and have concerns as to whether I should continue to call it home. Would love your thoughts.
The best investment I’ve ever made was purchasing seven 3 unit buildings spanning an entire block in Philly for just over $100k. Yes, they needed mechanical renovations. These were low income rentals so no need of fancy anything. The CAP rate on these buildings was about 60, yes 60. The bad part was in there wasn’t a management company worth spit that would take these buildings on. This not to say I didn’t try a few management companies, some were incompetent and others were scammers. In the end I kept the properties for 8 years, the kids college was paid in full, a few vacations, and then a knock on the door. An investor (hedge fund) made an offer I could not refuse.
The all time best days were buying and then selling these units. The chunk of cash from the sale was directed into a Dairy Queen Grill and Chill franchise managed and half owned by my son and law.
I’m currently selling the single homes I also purchased within the same 8 year time period. I’ll be very in January when the last of the homes will close. I’m doing a 1031 into a suburban apartment building with massive cash flow where the tenants are a lot less trouble, a much easier to evict. So easy it’s rare a tenant will go that route.
Great article. I have 4 rentals in Australia and my anxiety always spikes when I see an email or phone call from my property manager as I know it’ll cost me $$$ and stress. I used to manage them myself but I had one really awful bogan tenant and her deadbeat partner that left the place in a horrid state that took weeks to clean up and after that I handballed all the rentals to real estate. They charge about 9% here so yes it does eat into the profit but I’m willing to make the trade off rather than having a panic attack every time someone tells me their ending their lease and having to scramble to find and screen new tenants myself. I still end up doing a lot of the leg work myself though as I could swear the maintenance people the real estate use put on a massive property investor margin! I’ve had several very questionable quotes so I usually source tradesmen myself. It helps that property prices have tripled in the last 8 years in my city so to me that well offsets the landlord stress. And alas it is pretty great to have strangers pay down your assets and fund your retirement!
City-specific question but would you consider owning multi-unit buildings in San Francisco given the strong rent control laws? I own a 2-unit building: live in 1, rent the other. I’ll eventually move and at that time would probably just sell to avoid getting trapped with a long-term tenant with below-market rent increases.
I’m up for anything if the numbers make sense. The key really is screening tenants properly. If you get a tenant at market rate, it’s pretty good for three years even if market rents go up. The vast majority of tenants leave within 5 years, which means a reset to market rates again.
The older I get, the happier I am to have less turnover despite lower market rent.
We have owned for years a handful of multifamily in different areas of San Francisco. I would say the one concern that’s been nagging at me lately is the sheer cost of repairs, construction, etc. which has risen so much faster than market rate rents. We own our place out in Southampton and Manhattan and the prices for work done in San Francisco is MULTIPLES of NY. A family member retired from general contracting work and said he’s never seen it so bad in terms of getting anyone to work construction, leaving aside the cost of permits and bureaucracy with SF depts.
Though the average might leave within 5 years, there’s always a chance that one will stay and become a lifer. I have one tenant who is single, moved in 2007, currently only pays $1700 for a 1BR where others in the same building pay $3K+. He is now likely in his 50s and is unlikely to ever move or get married.
Sad to say, because of rent control, most people select candidates who are VERY likely to move on — high income couples in their 20s who will disappear once they get married or have kids. No one will admit to that, of course. But even because of rent control, after a year, they can stay and leave whenever they want, which means it could be low months like December or January where you will have to scramble to get a tenant and not get top dollar (which of course gets locked in for 3-5 years assuming average turnover). In Manhattan, where we have much less entitled SF profile tenants, we have one apt where the lease turns over every April, where it’s much easier to find tenants if they decide not to renew.
The only benefit I see to SF (mainly CA) is that your property tax increases will at least be capped.
Sam – Have you ever looked into net-lease (NNN) properties? Secure cash flow often from an investment grade tenant without any of the landlording.
I have this same question as I’m looking at alternatives to buying an additional rental property right now. Have you found sources for NNN that you are happy with?
I just invest in private real estate funds. Private real estate funds do all the work for you and focus on maximizing profits. NNN are included in these private real estate funds. The goal is to earn income and profits 100% passively.
I would not do rental properties without a property manager. I’d rather spend time with the family than deal with tenant issues directly. My property manager takes 6%, which is well worth it.
But, there’s nothing wrong with managing properties yourself. I think it comes down to personal preference.
Zillow (and sites like Angi) makes it easy to be your own property manager these days, especially in non-blue states where evictions are easier but as Sam has said, the key is to get good tenants, so for me I like townhomes in good areas of town – less maintenance and is typically where white-collar workers look for when they move in from out of town.
My rental property ownership limit has fluctuated over the years based on how much time my kids need. I love maintaining my residential rentals and deducting many of those expenses against gross income which I cannot do for upgrades to my home. I love the cash flow. I dislike all the record keeping necessary for taxes. I dislike having the decline in cash flow during vacancies, which occurs simultaneously with rehab expenses. I dislike the constant addition of new laws here in California which strongly favor tenants at the expense of landlords. I dislike that I can never be fully retired unless I sell, which I’m trying to avoid for the sake of my kids. I also dislike the Catch 22 of residential rent increases: if you do not raise them some each year, then they fall too far below the fair market, necessitating a larger increase.
I have two commercial tenants and several residential tenants, and I have noticed dealing with my commercial tenants is much more enjoyable than some of my residential tenants. Commercial tenants take care of many more of their own repair issues than residential tenants do. There is less chance of the government interfering with the lease, as with the eviction moratorium and rent control. Both of my commercial tenants are wealthier than I am, which gives me peace of mind that they can handle whatever economic circumstances may arise. It is more of a long term relationship than residential tenants. That said, I will admit, when my prior commercial tenant retired and sold his business to the current tenant, it was definitely a stressful process and much more involved than placing a new residential tenant. One aspect I dislike about commercial tenants is that it is a bit more difficult to determine a fair price for the property’s rent.
“I dislike that I can never be fully retired unless I sell.”
Thanks for sharing. Can you explain this quote? Is the cash flow not enough? The good thing is, if you ever truly wanted to retire, you can sell your property. Having that option is nice.
I meant that self managing rental properties are definitely a part-time job, as you mentioned. You described the experience wonderfully when you mentioned all the weird and unpredictable situations that arise. My life has been filled with these. I guess I could hire a property manager for more properties in order to minimize that aspect. However, when there is a vacancy, I prefer to make many the remodeling choice myself. So maybe it’s just that I need to learn to delegate more. Also, there have been three occasions, all with the same very reputable company, when I used a property manager at my long distance rental. Two times it was a great experience. A third time it was a disaster. As a result, I trust my own judgment with tenant choice, which determines 95% of the time whether the landlord will have a good experience. Thank you for your insightful articles.
Ah, gotcha. Yes, nobody cares more about our properties than we do. So I feel owners are extra diligent during the tenant screening process.
My POSITIVE mental shift was categorizing my rental properties as a part-time job. Once that happened, I felt less stressed b/c I like to do a good job at whatever it is. The feeling of responsibility. So when nothing happens for a while, it also feels good to earn 100% passive income.
When my tenant said a couple of weeks ago she found a leaky kitchen pipe, I jumped on it and got it fixed right away. The P-trap pipe indeed cracked on both sides even though it was just installed in a remodel in 2020. So I was THANKFUL she alerted me, b/c water damage is the worst and the pipe would have eventually cracked.
Sam – Do you think you would be more open to property management if you owned multi family units ? I have no idea what your numbers look like in San Francisco however, I own a single family rental in the Boston area which I manage myself and a 4 unit building further away from the city managed by a property manager and I am happy to pay for someone else to take care of the headaches. With that said the cash flow from my multi family is much stronger to support the additional fees . I enjoy your thoughtful posts as well as reading Buy This, Not That ! Awesome job with the book.
I would definitely hire a property manager if I were to keep buying more physical rental properties. In fact, I have one for my Lake Tahoe vacation property which I’m more than happy to pay 25% of gross rental income to.
But as of now, I’ve found my “happy limit” of self-managing three rentals. I’d probably be happier managing only two or one, but then there’s the decline in rental income to consider.
My rentals are close by and I’ve done plenty of remodeling and have a trusted handyman who did the remodeling. Hence, I feel bad paying a property manager to do things I can do myself. If I had a day job, I would be much more inclined to pay for a property manager too.
Thanks for reading BTNT. If I could trouble you for a nice Amazon review, I’d appreciate it!
Absolutely , 5 stars . I understand your point on paying to have a remodeled home managed, it’s tough to swallow when living close by . I’m in a similar situation with mine . The multi family market is a different story in Massachusetts with much of the inventory dating back to the early 1900’s . The cash flow can be great on the right properties however the maintenance requests/repairs are frequent .
Much appreciated! Like having a great auto mechanic, having a great handyman is key. Never let him go and treat him well!
I have 2 units right now, but plan to go down to zero in 5 years. The rentals tie me down too much. I want to travel and enjoy a stress free lifestyle. RE crowdfunding is so much easier. I’ll let the pros deal with the tenants.
I really cannot get my head around how many problems you guys get by building with wood and how much you despair on manteinance costs. Granted, you also need heating or else… In my country heating is mostly not needed and we built with concrete and brick. Total cost of manteinance for 5 properties in the last 5 years: $600us dlls, and most of it was for painting which wasnt that much needed in the first place. Any other complain from the tenants that doesnt belong to the structure of the building or pipelines they cannot bother me by contract.
Great article and topic. I’m in the business and there are definitely ups and downs. I own 11 rentals, and self-manage. I think it’s too much and appreciated the downsizing and simplifying comments to get to what I can comfortably handle.
After a grueling summer maintenance season, I ended up having a problem tenant get thru my screening checks. Yikes! And can’t get them out due to my states eviction diversion protocols. It’s teaching me a lot, and especially the added risk of not having court support for getting rid of lease violators. Time to simplify and divest!
The book “the subtle art of not giving a fuck” gave me new perspective on managing my 6 buildings. I expect issues to come up and it is not a surprise when they do. Kinda the same idea.
“The desire for a more positive experience is itself a negative experience. And, paradoxically, the acceptance of one’s negative experience is itself a positive experience.”
Thank you for the article Sam! You’re writing a topic that has been on my mind lately about rental properties. I can relate to the stories you just share and I’ve had worse tenant issues. I currently have 2 rental properties with total of 5 units and managing them is like a part time job. I hate it every time I get notified about repairs/issues, but that’s part of the building wealth phase that we all go through. My plan is to keep chugging it and see how far it’ll get me. Real estate is still the number one asset in wealth creation so I would like to keep buying more properties down the line.
I presently own 6 rental properties, down from 10 about a decade ago. All are paid in full. The biggest and most valuable lesson I learned early on was to carefully screen tenants. I’d rather the property sit vacant than to have the wrong tenant in place. Do this, and your rental issues stop being tenant centered, and become only maintenance centered. LOVE my present tenants and the security these properties provide for all of the reasons cited by Sam.
100% great advice. Also if you price rent slightly below market you expand your rental pool, increasing likelihood of great tenant. 1 month of vacancy is 8% reduction in effective rent so its usually worth it to be $50-$100 below market to reduce that vacancy rate as low as possible. I average about 10 days of vacancy between tenants.
This is largely why I haven’t gotten into real estate even though I should.
I have enough small hassles to deal with from emotional and tired kids, to keeping my own house in order.
Adding a rental property is one more thing that I think would put more mental strain on me, EVEN if it is the right thing to do financially.
I laugh at myself though, because I bought an affiliate website that created a huge mental strain, but at least has more unlimited upside potential.
But because of that, I cannot add any more without first subtracting. Only time will tell!
A year ago I transitioned from corporate soul crushing job to rental properties. I do mostly long term (30 days or more) on airbnb but now I have started to resent all tenants. Irony is most of them are nice but the few bad ones spoiled my perspective. I like to make everyone happy and try to help with things I haven’t even advertised, but came to realize you offer a finger and they swollow your whole arm. Every time! I’m still trying to keep perspective and view it as a part time job and try not to get irked but I’m not a robot so like you said my mood sours when I have to deal with situations. I hope to get better at that and just handle them without being emotionally affected.
“you offer a finger and they swallow your whole arm”
Yes. Have to stay firm, but thoughtful, and have a good lease.
I’d love to keep my current primary residence as a rental property in a few years when we upgrade to a nicer home. Especially with the 2.75% mortgage we have on this one, the rental income would be at least twice our mortgage payment each month. However, saving another $150k-$200k for a second down payment if we don’t sell this house is the real challenge. Not sure how to manage that aspect of the home upgrade.
For Pete’s sake, hire a property manager. I have a combination of 9 homes/condo rentals, most out of state, all with property managers. The properties were acquired over time and all have property managers, and fund my retirement travels plus other living expenses. Don’t fret over the management fees, they are so worth it and just a cost of doing business and enjoying your life!
If I had more properties, I would. But I’ve purposefully limited my capacity to three because that is what is manageable. I have a property manager for my Lake Tahoe vacation rental.
Glad your property manager is working for you.
How much do you pay in management fees? I can’t bring myself to hire a property manager for my rentals because it amounts to tens of thousands of dollars a year in lost income. I just have a list of go-to service providers to deal with issues – I don’t/can’t do any of the repairs myself, but the management isn’t that much trouble, and I assume you have to manage your property manager anyway? We make plenty of money and I have a full time job and young kids and I still can’t bring myself to pay someone to do that work, though I have no problem outsourcing many other things. Plus I don’t want to give up control…
I recommend hiring a property manager. You still have to keep an eye on them, but you avoid a lot of the hassles that come with managing rentals. Just my 2 cents.
I own my comfortable limit for self-management. The rest; I gladly pay a fee to a private real estate fund manager like Fundrise to find the deals for me and manage them. A 1% fee is better than a 8.5% fee, or one month’s rent.
I wish it were really a 1% vs 8.5% comparison, but the reality is that 1% is already on top of property management expenses embedded into the expense structure of Fundrise. Don’t get me wrong, I like Fundrise and am invested with them, but there’s no free lunch.
True. But that’s how I like to see it. The net returns are all I care about. I do like outsource the work. And this year has been incredible outperformance. Thankful for the diversification.
Unfortunately the 1% is on top of the property management fee so it’s probably more like 10% vs 8.5%.
Just got the financing part done for my two very first investment properties! Final sale signatures will be next week.
I chose to rent where I live in Amsterdam and buy with better profitability rates in Lyon and Toulouse in France. Loved reading your article, and your book that I just finished, and looking forward to see if real estate investment was made for me if I feel comfortable with the two properties I plan to buy a couple more.
Thanks for all the great content!
I have 5 rental properties. I love when I get paid but hate it when I gave to repair as they could cost thousands! I will have 7 rentals in 6 months time. Really not looking forward but building wealth through property is what I know best so have to just to suck it up. Sometimes I wonder if I should sell and invest in shares but like you said because of stuff happening in china that you have no control you can also loose money. We are 46 and hopefully we will retire in the next 6 months. So that’s something we are looking forward to. After years of building wealth. Thank you for the article
You don’t have to be all-in on real estate. What’s your ROI on the properties?