Rental Property Problems… And How To Avoid Them

In high school, my best friend moved from Phoenix to Milwaukee. His family kept their house in Phoenix and turned it into a rental.

When he moved back to Phoenix a few years later, we drove by the property to check on it.

He talked about problems with tenants and the management company his parents had hired. The management company didn’t do anything for their money and the tenants damaged the house.

In his mind at the time, and that of his parents, the income from the rental wasn’t worth the expense and hassle.

Years later as I was shopping for my first rental property, I couldn’t understand why more people didn’t own rental investments.

If you bought right and could use leverage, real estate seemed like the best thing since sliced bread… before I had my first property.

As I put my spreadsheets together in my search and started adding expense lines for repairs, maintenance, rental management, etc., I recalled the conversation with my friend back in Phoenix.

The hassle factor was the reason more people didn’t own rental properties.

I was willing to deal with the hassles of owning a rental property… so, being young, I pushed ahead with my search and found a property that fit my requirements.

The hassles started before I moved in.

The wood floors I wanted refinished were too damaged in the master bedroom. Under where the previous owner’s bed was, I found rotted wood, due, I suspected, to the seller’s incontinent dog. Cheaper and easier to put a new wood floor on top rather than removing the old floor.

Hassle solved.

One night the second-floor tenants had a party. Someone broke a window on their back porch. I knew the window was broken, but it took the tenants a couple days before they asked for it to be fixed. They said a bird flew into it. When I asked how the bird managed for all the glass to fall out of the building, they confessed that it was broken at the party.

Lying tenants and broken windows are common hassles with rentals.

Then, one New Year’s Eve, the building’s hot water tank expired. The bottom had rusted out. No hot water New Year’s Day, but Sears was open and carried the oversized hot water heater I needed. No plumbers sober on New Year’s, so I installed it myself. That’s the kind of hassle a rental manager deals with for you, but I didn’t have one because I lived on the premises.

Over the two-and-a-half years of owning the building, the small hassles were plenty, but then the payday came when I sold and ended up with 30 times my initial down payment. All the repairs and maintenance had been paid for by rent… or security deposits in the case of the broken window. That made all the hassle worthwhile.

More recently, friends told me they were selling a second home that they don’t use often enough to justify keeping. When I asked why not set it up for short-term rental, the hassle factor reared its head.

The overriding hassle in this case wasn’t tenants or dealing with a rental manager. It was taxes.

They didn’t want to deal with the tax filing and all that entailed, not so much the actual taxes they may have to pay, but the hassle of the paperwork. So they’ll sell instead.

I didn’t understand their position until I spoke with another friend who’s older than me. He was talking about his business and wanting to pass it along to his children. They have ideas for expanding, but those ideas would require new permits and a few other hassles. The friend isn’t interested, but he’s happy to let the kids run with their ideas.

Turns out you have less tolerance for the hassle factor as you get older.

That helps explain the other friends wanting to sell, rather than rent, their apartment.

Over the years, I’ve selected which hassles I’m willing to take on and which I’m not.

You can’t deal with everything, so focus on areas that you have an interest in or are at least entertaining.

For Kathleen and me, renovating a property is fun—fun that can turn into profit. Others might rather wait until a renovation was done to buy a property. Fair enough—they don’t want the hassle of the renovation and understand they’ll pay more for the convenience of buying a renovated property.

The hassle factor can come into play with most any aspect of life. I prefer to not wake up at 2 a.m. the day after Thanksgiving to save $50 on a new TV set that I don’t need. I’d rather just pay the normal price. Others, however, are happy to deal with the hassle of waiting in line in the freezing dark to get that savings.

We all choose which hassles to deal with. Recognizing that’s what we’re doing and factoring it into our overall risk assessment of an investment, business, or life decision helps you make wiser choices.

Stay diversified,