Ever wondered what it would be like to personally manage a handful of real estate rentals, or how to be a landlord? Today, we’ll peer into the mystical realm of the small-time landlord. (Cue Game of Thrones theme song.) For those not familiar with some past posts on this topic, it’s the rentals that gave us the juice to enter the FIRE orbit. I like to tell others how passive long-term rentals have been for us. But “passive” shouldn’t imply that you never have to lift a finger!
Why it Pays to Be a Small-time Landlord
I’ve been a landlord for six years now. Being a landlord means I manage the entire show: from finding new tenants, to adjusting leases, fixing busted drains, clearing out gutters, and fighting property tax increases.
If I had to hire out all that stuff, it’d cost us between 8%-12% of the monthly rent. Say you’ve got four rentals, with a base rent of $1,400 per month… Welp, that’s um, lessee here… (tap tap tap) $560 per month gone POOF! Annually, you’d lose almost 7,000 bucks.
Granted, your fine accountant would note that as a business expense, but still. Why trust your property to a third party, when most of this stuff is well within your wheelhouse?
Let’s look at it another way. Most of my leases are two-year deals. That means I might have to find one, possible two new tenants in a given year, assuming no renewals. The amount of time I need to relist the property on Craigslist, perform background checks, coordinate viewings, and complete lease signing? 8 hours.
If the house needs some deep cleaning and nick-knack maintenance between tenants? That’s a day of hard work, when it happens. Typically I’ve had no problem turning over a house straight from one tenant to the next with a few handshakes and “good lucks”. But let’s assume the prior tenants were total slobs and the turnover is an absolute pit: 12 more hours.
How about that “day in the life” stuff we’ll get to next? Each house gets a fall and spring inspection. Those trips, which include light maintenance and gutter cleaning consume about 6 hours in total every six months. So, 12 more hours.
The amount of time it takes to forward the utility bills to tenants, and transfer rent collections from Venmo to the business checking account each month? About 10 minutes, or 2 hours per year.
Adding it all up, the time invested in these four houses, year over year, is about 34 hours (assuming one bad turnover). If you’ve ever wanted to be a sole-proprietor property manager, you’d now have an idea of your hourly wage… 34 hours for $7,000 is what, $206 per hour?
Not too shabby! This is why I self-manage our four rentals. Not to mention, I enjoy getting my hands dirty from time to time.
A Day in the Life of a Small-time Landlord
This past Saturday was Spring Inspection Saturday. Yes!!! I loaded up my trusty Honda Fit with my tool box, another case with caulk gun, hedge clippers, and power drill. My plan was to complete four inspections between 9AM and 1PM. Four hours. Easy.
The first stop was a 6 mile, 10 minute drive away. This house is set in a modest, old neighborhood of the city with a lot of neat small businesses. Live here, and you’re within a few blocks of the metro light rail system. Downtown and the Mall of America are within easy reach – no car required.
Anyhow, I love this particular rental, affectionately called “Rental D”. It’s a one bedroom classic built in the late 20s. Stucco as strong as Captain America’s shield. New roof (loving THAT), unfinished but clean and painted basement, new mechanicals, and above all else? Awesome tenants.
I was in and out within 15 minutes. My tenant had already turned on the water to the outside (in Minnesota we shut it off in the fall to avoid frozen pipes). They’d swapped the furnace filter too (sooo important for a furnace’s longevity). Heck, this is easy! No minor maintenance needs and the house was spic and span. See, it’s tenants like this that make a landlord grin from ear to ear.
Next up? Good ol’ Rental C. This is the house we’ve put the most coin into over the past five years. Decent bones, but a bit neglected in a number of ways before we got a hold of it. The very first thing I tackled was the front screen door. Not on my list of things to do that day, but you gotta plan for the unexpected.
The screen door simply wasn’t catching the latch to stay shut. So when the wind picked up, the thing would flap in the breeze and slam into the entry rail. Twenty minutes and a handy scrap piece of wood later, the door was latching securely once again. Here’s the star of the show — the tool that I’ve come to love more than any other in my arsenal:
Next up, wrapping insulation around the central air coil. Easy enough, but first I had to saw away an old tree stump that’d grown fused to the line. Now that’s a good workout, especially when you’re trying to avoid sawing through copper lines carrying Freon. The tubing was six bucks, and the job took another 20 minutes. No big deal…
Finally I had to deal with wooden fencing from hell. I’m always sure to carry a sh*tload of deck screws, because it’s inevitable a handful of nailed in planks have come loose since my last visit. I have a love-hate relationship with this fence. On the one hand, it allows me to rent out to dog owners. On the other, the fence is a pain to maintain.
About 20 more minutes and I wrapped that chore up too. Rental C took an hour, all told. Not bad.
Now I’m getting hungry and I have to pee. But there’s no rest for the weary landlord. It’s already 11:30 and I’ve invested more than two hours to get to the halfway mark. Fortunately, Rental A doesn’t have any repairs needed. Just a bunch of weed trees to clip away.
I turned on the outside water, checked the furnace filter, cleared out lint from the outside dryer vent, and called it good. All told, 20 minutes invested. (And thankfully, this rental has a utilitarian extra bathroom in the basement. Whew!)
Rewarding and Painful Maintenance Projects
This last segment of the post is reserved for Rental B. This particular rental has a special place in my heart. It’s the unit we bought only six months after Rental A.
See, it wasn’t enough that we were already in debt by using our home equity line of credit for Rental A’s down payment. Nope. THIS guy had the nerve to take out a second stack of bills from his 401K for down-payment on yet another rental. Now, I wouldn’t recommend that to everyone. I saw a low risk, high return opportunity, and went for it.
Rental B was purchased in 2013, right around the time the local housing market was showing signs of emerging recovery. No more short sales or foreclosures to be had. Just lower priced houses.
The best part? We closed on this one right when the twins were born. Papa Cubert was spending lots of hours getting this place ready for tenants during a crazy hectic exciting time at home. Thank goodness for grandparents! And looking back, I have no regrets. These rentals effectively paid all of our substantial nanny costs these past four plus years, dollar for dollar.
Let’s get back to capping off the topic at-hand, my “Day in the Life”…
Rental B had a leaking utility tub drain assembly. Everything else about the house was hunky-dory. Easy-peasy. Ship-shape I tells ya. Then, THIS:
I kinda miscalculated the toil involved with replacing this old 1920’s drain and p-trap assembly. Certifiably NOT the project you’d want to tackle an hour before a new episode of Game of Thrones airs. But this was the middle of the day on a Saturday. The one thing I was missing was time with my family. This rental took my time when the twins were born, and now it was taking some precious hours yet again. See, it ain’t always roses with real estate rentals.
To make a long story short (you can read all about my adventures in plumbing, etc. over at Waffle on Wednesday), I had to make three separate trips to get all the parts. The only specialty plumbing supply shop in town was going to close for the day, just ten minutes after I showed up. Gotta recognize the spots of good luck amidst an otherwise bad luck situation, no?
That third trip was to go back to a general hardware store to get the right sized bolts to fit into the new replacement flange (rusty part shown above). I should mention how much a pain in the ass it was to get this piece of ancient wreckage dislodged from the underside of an old concrete utility sink. I had to hammer the rust off, and slowly crank each nut off those rusted bolts. Wee…
All told, this project took 2 hours. The super rare ancient replacement part (the bugle / flared adapter piece) cost me $50, but that sink ain’t leakin’ no more.
Summary: It’s Worth It
Even though I stumbled into a complicated maintenance project at the end of the day, the problem was ultimately solved. And bonus, I found a new plumbing supply shop in town that’s actually open on Saturday. I expected to invest 4 hours and wound-up at 5.5. Not a big deal.
The short term rentals continue to perform well as an investment, yielding about $500 in cash flow month over month. The tenants are reliable and take good care of the dwellings.
Now you know what a day in the life of a small time landlord looks like. It does not suck, even though sometimes, you run into plumbing projects from HELL. I’m outta here. Time to catch up on Game of Thrones season 6!
(Shoot. Forgot to clear the gutters.)