In a post that I published last week, “Foregeative Experiences: Property, Oh Brothers!,” I whined about discussed our experience with buying/owning property that I’ve lived in. The short takeaway on said experience: I did not like that, Sam I am.
I’ve read all manner of accounts of people extolling the wonders of building wealth and passive revenue through renting and/or flipping properties. Some people seem to make a living on this alone. Others have it as part of their revenue-generating assets. They make it sound so good. And so easy.
While I admit to having been tempted to go down the real estate route, I’ve never done so. All it usually takes for me to discard the notion is a self-administered, but light, face-punch. We are, however, invested in a REIT index fund. So between that and real estate holdings in other index funds, we’re not altogether out of the property game.
That notwithstanding, here are some of my reasons for shying away from buying property for renting or flipping purposes.
Seek and maaaaybe ye shall find
It’s said that one should know thine own self. Mindful of that, I know that I’m not smart enough to consistently find good rental or other investment properties. Sure, I can do a ton of some research and make some guesses. But given the fickleness of the economy and of the flakiness of people (more on that later), it seems to me that real estate market prices, and the reliability of tenants, is a constant wildcard. I like wildcards in poker. But not in my major investments.
Tie me up, tie me down
I don’t want to save and tie up a bunch of money for a down payment (or down payments for multiple properties). Down payments are expensive big little devils. Sure, a low-cost property likely would require a relatively low down payment. But if I invested in real estate, I’d want to diversify by having multiple properties. So the aggregate cost of those down payments would rise accordingly. And the idea of great leverage scares me. Like a chupacabra.
I’d rather invest the money in index funds and play the odds of long-term positive annual returns. Ditto for the pool of money that I know I’d need to hold back as a reserve fund.
Anchor, man
I don’t want a mortgage or multiple mortgages that’d be around my neck like an albatross. I’d also rather not pay interest if I don’t have to. Nor do I want to have to make mortgage payments if the income source for doing so dries up (in the case of a renter leaving a rental property, or the rental amount having to be lowered) or while a place I’m flipping is still in the fixer-upper stage. Seems like just so big a headache to me.
Buy high, sell low
Given our experience owning property (and my lack of faith in my ability to pick a winner property), I don’t have faith that we could sell properties for prices far exceeding our buy prices. Much less also counting the money we put into the property. Seems like too much a gamble to me. So I wouldn’t count on selling a property for much more than we bought it for. Even if we made improvements to a too-be-flipped property.
It’s gain time
As mentioned above, I can deploy money that’d be tied up in the property into investments that I think not only more sound, but that with gains would make the alternative of buying a property an even less financially sound use of the money. And, possibly with less risk (or at least fewer possible headaches). I know there are no small number of people who do better by real estate than through other investments. But I just see that as too much risk and work. Probably Maybe I’m just lazy and dumb. I’m cool with that.
I’m in quite a fix
Continuing with this theme of me being lazy and dumb, I likely would have to hire out property fixes. That’s cuz I hate home maintenance and I am not handy. One of my goals is to reverse this state of my basic maintenance incompetence. But . . . we ain’t there yet. And while the capitalist in me applauds tradespeople for charging a good rate for their work, the customer in me has more of a stomping-feet reaction. And yes, I know that I could hire a management company to help me with property management in the case of rental properties. But I see that as just eroding what might already be slim margins.
Surprise party
If there’s one thing that I learned from home ownership, it’s that property can be a money pit. And those expenses can come at any time and in any size. I hate unexpected expenses, especially large ones. I do not like them in a box. I do not like them with a fox. I do not like them with a mouse. And I most certainly do not like them with a house.
I also don’t relish the thought of middle-of-the-night or middle-of-my-vacation calls from a tenant or neighbor screaming about some problem, like a leaky faucet. Or a jet plane having crashed into my property.
Frosted flakes
Maybe most important for me, I have, shall we say, a somewhat jaundiced view of people. I’m even more skeptical that they will do the right thing in any given situation and do so consistently. In short, I expect that people will just as soon disappoint me as not.
That’s a rotten attitude to go through life with, I admit. But it helps temper the disappointment I regularly experience when people prove to be flakes. And I’m at a point that I will actively try to avoid creating situations where someone can disappoint me. To wit, those involved in the selling, buying, and renting of property.
I’ve heard enough stories to make me all but certain that sellers, buyers, and tenants are as a class as reliable and fun to deal with as hot jelly. Some people get lucky and deal with good people. I don’t count on that for myself. And I suppose many people could calmly and easily deal with a bad tenant. Or a buyer who has objectively ridiculous demands. Or a seller who holds out for a price in full defiance of market realities. I am not one of those people.
I’m certain that the first flaky tenant I had to deal with would bring about in me a fatal massive aneurysm. That don’t sound like fun.
Oh, and there’s also the ever-present possibility that a tenant (even a good one) will leave at the end of a lease, or will break the lease. Or get kidnapped. Or do something silly, like die. That’d very likely mean lost rent. On the spectrum or super-fun to absolutely dreadful things, lost months of rent doesn’t seem like it’d be on former side.
The end
Is it possible to make money through rental properties? Sure. A lot of it in cases. Several people I respect have done it and done it well. But is the effort and trouble worth it to me? Absolutely not. I get queasy just thinking about it. At least I think that’s what’s caused my nausea. Could be that greasy pork sandwich served in a dirty ashtray that I ate for lunch.
