According to every self-help book, passive income is the key to efficiently building wealth. You should build a portfolio that balances risk and growth for a reliable source of income that supplements and eventually supplants your career.
Leasing real estate is a great way to bring in passive income. However, leasing properties, unlike owning bonds or stocks, is an involved undertaking. There is a plethora of tasks from complying with local ordinances, finding residents, repairs and even ejecting the troublesome resident, if need be.
When you begin leasing properties there are two routes: self-managed and hiring a property management company to do it for you. Each route has pros and cons and it depends upon your situation. Here are a few issues to consider before you start leasing.
The duties involved in managing a property
Managing a property invariably involves the following responsibilities:
- Advertising and finding potential residents
- Showing the property, interviewing applicants, conducting background checks and drafting a lease agreement
- Renovating and maintaining the property
- Responding to emergencies and hiring contractors
- Collecting rent
- Enforcing the lease or evicting residents.
Managing properties is a jack-of-all-trades job. You need to be part handyman, salesman, manager, lawyer and more. This leads to the first question:
Do you have the time?
Leasing properties consumes a significant portion of your time. Do you have a full-time job? Do you have other investments? Do you live near the property? Can you afford to take time away from work or to fly in to address a problem? How much time can you realistically spend on your property?
Managing a property is not an auto-pilot business. You must take a hands-on approach to safeguard your interest.
Do you have experience keeping detail records of residents, expenses, payments and other lease activities? Leasing properties involves tracking numerous pieces of information. Tracking this much information takes time. You have to record it and develop a filing system. These records are critical to comply with tax requirements and are the best defense to eject a troublesome resident. You cannot afford to cut corners.
A good trick to conceptualize the cost in time is to translate it into dollars per hour. It will cost you between $15 and $30 per hour to delegate some of these jobs. Whereas you can spend your own time focused on your career or generating more business to buy more properties.
Take a hard look at your spare time, you do not want to overstretch. Leasing properties should generate wealth not detract from other areas of your life.
Why are you leasing your property?
There are two primary reasons to rent. First, you like building up and leasing properties, it is your passion. In this case your first property can be the first asset in your property management company.
However, if you are like most people then you want to own property to generate wealth. If that is the case, your time is better spent finding new properties or pursuing your main source of income. You do not want to become distracted by the minutiae of managing a property.
Delegate and leverage the skills of a team
Hiring a professional property manager is a good way to generate confidence in your business as a landlord. Remember the goal is to build a portfolio of passive income. The best way to do that is with a team of like-minded individuals. Professional management companies make their living by allowing you to focus on acquiring more properties, instead of managing the ones you have. The more properties you acquire, the more he or she can manage and earn income. Leverage the skills of a team to grow your portfolio.
Be honest about your strengths and time constraints. Allow yourself to let go and delegate responsibilities so that you can focus on other areas, if need be.
At Property ADVANTAGE we provide management services to a variety of properties. Our team of skilled professionals can keep your rental up to code and properly managed. Feel free to peruse our Owner’s Resources for additional tips or information on how you can get the most out of your rental properties.