Working too hard for Passive Income

Dear Sue,

I purchased a fixer upper as an investment. My plan was to fix the house up and rent it out. I figured that I could do the work myself and add value with “sweat” equity. I would then rent it out to a good tenant. I thought that I would get enough rent to more than cover expenses and have a little left over. I was really looking forward to receiving that passive income.

Now I find that I am working on my rental property in all my spare time. So much for so called “passive” income. I feel like I have another job.

I had no idea that owning income property would be so labor intensive. I would like my income to really be passive. Any ideas?

Tired Ted

Dear Ted

I envy those that have the skills and time to do what it takes to add value to a run down property.

Investors purchase properties expecting a return on their investment. The return can be from rents, appreciation or adding value like you did by fixing up the property. The value added to a property through rehabilitation is generally more immediate and over time can have a much higher rate of return.

I don’t understand why you are still constantly working on your property. Are you forced to work around a tenant living at in the property? Do you have an on-going maintenance issue or do you just not know when to stop?

If you have an on-going maintenance issue, engage a professional and get it handled once and for all. If you don’t know when to stop, just stop. Your income will become passive the minute that you do. It is as simple as it sounds. More power to you if a tenant is letting you rehab the property while he/she is occupying it. That’s a landlord’s dream.

I realize that most publications tout the benefits of owning income or investment property. In reality, there are several disadvantages or potential pitfalls in owning investment property. Among them is signing up for a second job like you did.

Other disadvantages to consider are vacancies, bad tenants, liability issues or unexpected repairs. These disadvantages can be minimized by taking the job of being a landlord seriously.

It would be prudent to build a legal and tax team to help you with a plan. Hire a reputable property manager to assist you with advertising for and qualifying tenants. A professional property management company has access to repairmen, contractors and cleaners at reasonable prices. They also have critical knowledge of landlord / tenant law. It’s better to spend hours in the library on research than hours fighting it out in the courts.

Being aware of the disadvantages of owning investment property and working with professionals can be a matter of good Home $$s and Sense.