Landlordship

You've probably heard it said a million different ways that real estate investing is a legitimate path to real wealth.  I happen to believe that.  It's true and can be a huge winner with regard to generating vast sums of money, someday.  That's right, it, like most other true pathways, is not an instant, get-rich-quick scheme.  You must put in the time, expend the effort, and put up with the headaches to get to those bigger gains.

Yesterday I was talking to my dad about the frustrations I have with my renters.  He began to delve into his oft repeated statements about how renting out a property is one of the messiest and most difficult things a person can do to themselves.  He said that the trick would be to have other people manage it for me.

I would love to have somebody else do my dirty work in this arena. However, I replied to my dad by asking him, "If you just started your own restaurant, where would you be spending most of your time?"  His response: "At the restaurant!  Cooking and making sure it runs right."  That was the answer I was looking for.  Truly, it's your money, not someone else's, so nobody else is going to care as much as you do.  In the beginning, the margins are too slim to rely on somebody else's ability to make it all work.  The same goes for real estate investing and property management.  Because I'm just starting, I need to be involved every step of the way.

The difficulties are different for a landlord than they are for a restaurant owner, or a retail store owner, or a repair shop owner.  Difficulties, though, exist in every one of these endeavors.  That's how it works.  You cannot simply get rich without putting in the effort and time it takes to get there.

As a property manager for my rentals, I have to make all the calls, go collect the rent, and deal with laziness and late payments.  This requires a certain degree of politeness while still remaining strong.  My dad used to say, "Don't mistake kindness for weakness."  I think that phrase rightly characterizes he and I both.  We are exceedingly kind individuals, but that doesn't mean we can be taken advantage of over and over again.  With my renters, I have to maintain a constant boundary while remaining kind in my dealings.  This helps to ensure that the relationship doesn't sour and cause me to end up with a heavily damaged property once they move out, but I still get paid.

My goals are straightforward as a landlord: pay the houses off; create positive cash-flow (the amount of money being paid to me by my properties is greater than the money going out); eventually expanding to multi-unit properties (real estate investors refer to this as diversification); building a large asset base of properties with positive cash flow that can sustain continued growth as well as all expenses for my entire family.  Finally, I need a solid network of individuals in all related areas that I can rely on to perform much of the management for me and to keep the empire growing.

As the scripture says in Proverbs 13, verse 22, "A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous."  My goal is to generate enough assets that even if my children's children aren't prudent with their spending, the income will continue to flow in.  The obstacles to such a goal are not a simple matter.

Aside from the irresponsible nature of my descendants that will inevitably occur, there is the obstacle of getting off the ground in the first place.  See, not only am I poised to launch a huge wealth generator, but I'm also poised to fail.  The housing market is bad right now, as is the rest of the economy.  If I lose my job or my wife loses her job or some huge expense hits our family that we can't afford, I might have to fold and lose all I've worked to gain so far.  That's not the end of the road, of course, but it is an extremely large setback that I'll never fully recover from.

Understand that as time marches forward, my window to generate exponential wealth diminishes.  You've heard it said that investing $20 a week for fifty years with a modest 10% annual return will make a millionaire out of you, but that investing $20 a week late in life, even at a liberal 18-20% gain won't have near the same results.  Similarly, the money I make now will weigh heavily on the money I have toward the end of my life.  Whenever I waste money now or am forced to spend it on something that doesn't appreciate, I'm chipping away at my generational wealth.  A big screen television, some furniture for that nice, big house, a new car, a fun trip, etc. etc. now, will impact directly on my final numbers later.

Ultimately, it's quality of life that you must evaluate and adjust for.  As a landlord, much of my time is spent dealing with headaches; I lose time at home when I have to go collect the rent and I experience a high degree of stress as I'm contemplating eviction and the potential for destructive renters.  With riches at the end of life being more of a priority, what sacrifices in the here and now am I willing to make?  How much of a trade-off am I okay with to achieve these greater goals? I know that the quality of my son's childhood is very important, so I can't devote all my time to creating wealth for him later.  What quality of life do I want to maintain now and what quality of life do I want to have at the end of my life?

Short-sightedness is a bad sickness in American culture.  Most Americans today are heavily in debt, paying high interest loans, and suffering from a bad economy.  For many, this is a hard time in their life, but most of these people aren't even thinking about retirement, let alone providing something for those that they'll someday leave behind.  The quality of life that's bought with credit cards is not the quality of life that a family or an individual is supposed to have.

Here's what being a landlord, a business owner, or an investor means: you work hard and take your lumps, put in your time and brace for setbacks, and you get to that generational wealth at the end of the road.  It's a sacrifice, and some are more willing than others to sacrifice.  The road is hard, but the payoff at the end is worth it.  Sacrificing all for the eventual payoff isn't the goal either, however.  Balance is crucial.

Leave your children something and leave their children something as well.  You will someday die and you'll be leaving everything behind.  What will have been left?  Debt and a disastrous financial situation or successful investments and fruitful assets?  It's up to you.

So, is it worth it to be a landlord?  I say yes.  The road is tough right now, but it's that way no matter what you do.  So, the goal now is to get through the hard times at the beginning.  I'll someday stabilize, maintain positive cash-flow, and begin to roll the snowball of wealth forward.