BRYCE ON INVESTMENTS
– It’s like a boat; the best two days are when you buy one, and when you sell it.
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In these troubled economic times we’re always looking for a way to make a little extra cash. To this end, many people like to purchase buildings, condos or apartments and then rent them out. This type of investment is appealing for several reasons:
* It represents an asset you can possibly sell at a future date, hopefully for a profit. * It’s also a handy tax write-off, particularly the interest on a mortgage.
* And it is a seemingly steady cash flow that can hopefully pay off the investment over time.
From a purely economic viewpoint, renting sounds like a great idea that can possibly give you a better return on investment than what a lot of the financial institutions are offering. If we lived in a perfect world, everything would be rosy and you would have a cash machine chugging away night and day, but unfortunately such is not the case. In reality, there are a lot of headaches associated with rental property. The first thing you have to realize is that the rental property does not run itself. You need people to market it, maintain it, and to live in it. This translates into real estate agents, homeowner associations, maintenance vendors, and renters. In other words, your troubles are only beginning.
Homeowner or condo associations typically watch your every move and are eager to cite you for the slightest violation of the rules. They are also not bashful when it comes to presenting you with bills for dues or some other innocuous improvement to the common areas of the property (which, of course, you were never consulted on).
Building repairs is an ongoing problem as something will inevitably go wrong at the worst possible time, such as when you are miles away on vacation somewhere. Air conditioners, refrigerators, stoves, dishwashers, etc. all have an uncanny knack for breaking down, even if you have a maintenance contract with someone. Then there is the problem of repairing the roof or parking lot every few years, representing a tidy outlay of money.
But perhaps the biggest problem is the renter, the tenant who leases the property. Typically, the relationship between landlord and tenant is either very good or very bad, rarely is it in-between. The person who pays his/her rent on time, is not a deadbeat, and takes reasonable care of the property is becoming few and far between. Most assume no responsibility for the property, live like slobs, and expect the landlord to be on-call 24/7 even for a problem the tenant created. True, there are also slum lords who neglect their responsibilities, but renters can be equally irresponsible as well. Then there is the problem of evicting a deadbeat tenant which involves a long and nasty legal process. Hopefully, the tenant will not seriously damage the property or remove appliances during the eviction process.
With all of this in mind, I am seeing more and more people shy away from investing in rental properties. In a way, I guess a rental property is a lot like a boat whereby the best two days are when you buy it and when you sell it. When you compare the headaches associated with being a landlord to other types of investments, maybe that low interest Certificate of Deposit doesn’t look too bad after all.
Originally Published: 04/17/2009
Keep the Faith!
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Tim Bryce is a writer and the Managing Director of M&JB Investment Company (M&JB) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at [email protected]
For Tim’s columns, see:
timbryce.com
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Copyright © 2014 by Tim Bryce. All rights reserved.
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