Whew! It’s been kind of crazy around here lately. I decided to put our rental home and 4-plex up for sale and the whole process has been a bit hectic these past few weeks. Our tenants moved out of our rental home on Tuesday and since then, I have been fixing what I can. Next week, the contractors will take over and get it ready for sale. FYI, I manage the rental home myself and I have a property manager for the 4-plex.
Why am I selling our rentals now? Things are just starting to turn the corner on the cash flow front and we should make more money this year. Owning rental properties is a great way to generate wealth, so why sell? Well, the market is hot, so it’s a good time to take some profit. Also, I don’t think I’m really cut out to be a landlord right now. Let’s see my reasons for reducing our real estate holdings.
*Here is something new – I’m going to give real estate crowdfunding a try this year. I opened an account at Realty Shares in January and invested $8,000 in a commercial property in Arizona. The ROI for this project is estimated to be 17% annually over 3 years. That’s amazing and I’m anxious to see if they can deliver. This ROI estimate is quite high. Check them out if you want to invest in real estate, but don’t want to be a landlord.
Mrs. RB40 doesn’t support me
Well, she is supportive in general and she co-signs all the loans. However, I don’t think she enjoys being a landlord. She is a busy woman and being a landlord cuts into her time. I take care of all of the tenant interaction, but she’s stuck taking care of the kid while I run around.
She also hates dealing with the banks and real estate agents. It always takes a ton of time to go and sign those 80 pages documents. She is our record keeper and I have to bug her when we refinance or get a new loan.
Mrs. RB40 – It’s just annoying. I have other huge projects that I’m working on, and I’m also job hunting. I really don’t need another hassle right now, even if the mister says he take care of the tenant interactions. I’m also tired of hearing about how taxes are going to be so complicated. I’ve been trying to simplify our lives for some time now, and Joe never makes it any easier. I’m tired of it.
Why do I have a time crunch? I don’t even have a job anymore. Being a stay at home dad takes up a ton of my time. I blog when RB40 Jr. is asleep or at school and that uses up the rest of my time. We went to the rental house to fix the screen door today and Jr. knocked a closet door off the rail. He just creates more work for me when he tags along. When he starts kindergarten, I’ll have more time to work on other projects. Right now, any project is too much trouble.
Being a landlord can be stressful sometimes. I have been lucky and we have had pretty good tenants so far. However, even the best tenants create stress for landlords. Our tenants moved out earlier this week and they didn’t clean the place up that well. The toilet had hard water rings. The fridge and microwave interiors weren’t cleaned well. They ran the self cleaning cycle on the oven, but didn’t clean out all the crud left behind. These are all little things, but they add up and it’s going to cost money to hire someone. Anyway, we argued and they came back to clean up more while I was over there patching holes and painting. Once they cleaned up to my satisfaction, then I refunded their full security deposit.
I’m just not good at dealing with stress especially when it involves other people. I have had a headache for a week now and I’m hoping it goes away once the house is ready to be put on the market.
The nice guy syndrome
Yeap, that’s me. I want to be a nice guy and I usually forgive little infractions. The tenants’ check sometimes arrive a day or two late and I just send them a warning without charging them a late fee. They were long term tenants and I wanted to work with them. It’s probably better to be all business and do everything according to the book. If you’re a day late, you’ll be charged $75.
I’m not a great at DIY
I can fix a few small things, but I’m not great at DIY. It’s expensive to hire a plumber to come take a look at a leak, but I have no idea how to fix it. I also don’t want to drive 30 minutes out to the house and fiddle around with the toilet. We live in a small condo and don’t have space to store a lot of tools. That’s one side benefit to being a landlord, by the way. You can build a nice tool collection and charge it to the business. Anyway, as a result I hire out most of the repairs and it’s costly.
I really don’t want to be liable for tenants. I try to keep the rentals safe, but you don’t know what your renters will do. One family in our 4-plex must have been watching Treehouse Masters because they decided to build a huge tree house in the backyard. Luckily, the neighbor in the back reported the eyesore and we asked them to take it down. The 4-plex also has a small creek running behind it and I know kids play in there in the summer. I don’t even want to know who would be responsible if someone fell in or something like that. The creek is not part of our property.
Not patient enough to wait for cash flow
The properties probably will generate a small positive cash flow this year, but I don’t think it’s worth it. I can invest the money in dividend stock or REITs and receive similar cash flow. The stock market is a lot less work and I know I can handle the volatility. I’m sure the properties will cash flow much better in 10 years, but I’m a little too impatient. I’ll take the profit now while I can.
The real estate market is HOT right now. Houses stay on the market for only a few days and many of them have multiple bids. That’s a huge difference from just 3 years ago. As we all know the housing market is cyclical, but we don’t know when it will turn south again. Once it turns sour, we won’t be able to sell at the price we’d like. We might be stuck with those properties for 6-7 years until the market booms again. See how much your house is worth now at Zillow.
I would like more liquidity at this point. The stock market is at an all time high and I think we’re due for a correction in the next few years. It would be nice to have some liquidity ready for a bear market. Currently, the rentals locked up about 30% of our net worth. That’s a high percentage to be inaccessible.
Luck will turn at some point
As I mentioned above, I have been very lucky with tenants. The ones I deal with directly have been reasonable and mostly trouble free. There are a ton of nightmare stories out there, though. I feel like my luck is about to turn and I’ll get a crazy family. You can’t be lucky forever. Things are been going relatively well for too long now. Of course, you can mitigate a lot of the problems by screening the tenants very carefully.
Well, what do you think? Real estate is a great way to build wealth and many people became millionaires that way. It can be a lot of work, though. I just don’t need the hassle right now. Perhaps when I have more time I’ll consider being a landlord again. Here are the lessons I learn.
- Make sure of the property cash flow. Don’t invest in anything that doesn’t make money every month.
- Location – Next time, I’ll buy something closer to where we live so I can keep an eye on it.
- All business – Hire a property manager or tell the tenants that I’m just a property manager. Do everything by the book.
- Raise rent minimally every year – We signed a 3 year lease at the rental home and the tenants balked at any rent raise. That’s another reason why I’m selling. They decided to move out and it’s a good time to sell. It’s better to raise rent just a little bit every year.
- Repair and maintenance will cost more than expected – There will be things that need to be fixed. If you have a lot of time, you can DIY or else you need to have a repair fund ready.
Anyway, being a landlord isn’t too bad. When I have more time, I might consider picking up another rental again. It’d have to be during a downturn, though. It’s practically impossible to cash flow in our market at the current price.
Are you a landlord? Would you consider selling if the price is right?
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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