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.
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.
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.