The notion of earning "passive income" as a landlord is a total fantasy. The reality is that it takes a lot of work. Otherwise tenants, vendors, and property managers will wreck the assets and rob you blind.
You can outsource pretty much the entire thing, and just be a name on a paper, and receive money in your bank account, that's as close to "passive income" as you can get. Lots of people do this today, pretty common for landlords to do so in Spain for example, and I'm sure all around the world.
I tried this once and it wasn’t great. It was a single home, and in a college neighborhood (house was cheap, ergo rent was low).
The rent paid the mortgage, but that was about it. Repairs were more or less out of pocket.
I gave it up because I didn’t live locally and got raked over the coals on repairs a couple times. I finally quit because the property managers had an “emergency repairs” clause where they could do repairs without my approval and bill me.
One of the renters clogged the toilet at 11pm on a Saturday, moron decided to call the property management because I guess plungers are confusing, they decided that was an emergency, and I got a $700 bill to send a plumber out at midnight to plunge a toilet. Like not even a roto rooter or something, just a generic grocery store plunger.
Became clear I was either a) going to have to be much more involved, or b) accept that the returns are basically just equity in the house on a 15 year mortgage, minus overpriced repairs.
Oh yeah, the management companies bill insane amounts. The beach house I mentioned in the sibling sub-thread - they'd bill $100 to change a lightbulb, stuff like that.
It only made sense as a medium-term investment - buy with cash, maintain for a decade (and maybe you're cashflow positive for part of that), then sell for a profit (hopefully).
Similarly, local to me, renting a house really only makes sense if you bought cheap (which for us normies means we bought it years ago, so the mortgage is cheap vs current rents).
The returns just don’t really make sense for me, but I’m not a CPA.
The returns don’t seem substantially better than an index fund, it’s a headache to deal with, and if housing actually becomes affordable then you’re upside down (and the govt might air drop cash on upside down mortgages, probably not if you’re already paid off).
Not my forte though and I hand-waved the hell out of that math, maybe I’m way off. Just feels like a ton of capital to tie up for mediocre returns.
A beach house makes some more sense because you get the utility of being able to use it, which is worth something if you like to vacation to the same place.
No you're correct. I think the only thing you're missing is that the risk profile is entirely different from an index fund. The hit you take on returns might be worth it to you as a hedge against disastrous market conditions.
Also if your business is real estate then you probably operate more efficiently due to integration and scale plus the rental could be part of a longer term redevelopment plan.
> The hit you take on returns might be worth it to you as a hedge against disastrous market conditions.
Ahh, that does make more sense.
I do 100% believe there's an economy of scale there. Even just being large enough to employ an in-house repair person would probably be a huge savings. There's a lot of stuff anyone that can swing a hammer could fix that you end up hiring expensive tradesmen to do when you're not local.
Quality of maintenance, honest, doesn't take all the money - you can pick only 2 of these for your property operator. Actually, you have to be lucky to get 2.
If it works great and you aren't involved in solving constantly incoming troubles, you're earning peanuts.
It really isn't, some of people I know personally are literally doing exactly that. These "management companies" basically does everything for you, if you haven't heard about them since before, go look them up, I'm sure there is at least one active in your own area.
My close relative does it, and it's exactly like I wrote above: if it doesn't take your time, money mostly go to other people. There's a comment from everforward which gives a glimpse into reality.
All sorts of weird things can happen from time to time, but simply in terms of basic economics it isn't a stable arrangement. If you're making passive income that means you're operating inefficiently and someone could eat your lunch. The only exceptions that come to mind are significant moats and regulatory capture.
Agree. However, this is the main argument for yeti living somewhere. And property passive income is indeed very yeti-like, there's always somebody heard something, but with closer inspection it's either not that passive, or not that income-y. Or maybe it's like resonance particles: happens, but too unstable to be registered. There are plenty of forces both political, and economical working against it, after all.
My parents had a beach house for a while. It was rented May-Sept every year. They'd visit for a week in each shoulder season, spend half the time doing major cleaning/fixing, and left the day-to-day during rental season to a management company (same one that managed bookings for the house).
It wasn't 100% passive, but it was about as close as you can get as a retired upper-middle-class couple.
Sure but not “a lot of work” as nradov suggested above. And they could have outsourced that as well, but at some point it made sense to do some light maintenance while they were on-site.
You can outsource pretty much the entire thing, and just be a name on a paper, and receive money in your bank account, that's as close to "passive income" as you can get. Lots of people do this today, pretty common for landlords to do so in Spain for example, and I'm sure all around the world.