Many people make the claim that owning rental property is the best way to get out of the rat race and achieve long-term financial success. I happen to be a proponent of rental property. That being said, I’d like to challenge the above statement and see if it’s completely true. I will do that with a tale of two rentals; both scenarios took place last weekend.
It was the best of times, it was the worst of times. Actually, the time was twelve o’clock noon on Sunday, and we were heading up to the circus for my daughter’s fourth birthday. On our way, I got two calls about two properties, both with plumbing issues. One was in Cartersville, and the other was in Chatsworth.
We’d just rented the house in Cartersville for the first time. The tenants moved in over the weekend, and after a long day of sorting boxes, the wife wanted a hot shower to soothe her day away. She started the water and walked away to let it get hot. However, the water didn’t get hot. That was issue No. 1.
Issue two presented itself when she came back from letting the shower warm up. She noticed the tub was half full, which means it wasn’t draining. With no hot water and a clogged drain, she did what any good tenant does: she put some Drano in the tub and checked the water heater breaker. When that didn’t work, she called her landlord – like I said, good tenant.
The tenants in the Chatsworth house awoke to lots of water on the laundry room floor. After making sure it was not their washing machine leaking, they called me immediately. Over the phone, we determined the water heater was leaking. I had them shut off the water to the water heater, and made an appointment to go see them the next day.
When we got there, it was bad. The bottom of the water heater had rusted out, and water had been seeping unto the floor for a long time. This house was a new acquisition for us when we had installed these tenants back in April. We thought the water heater looked functional when we bought the property. We were wrong.
It had been leaking slowly for so long that it weakened the subfloor in the laundry area. We had to tear out all the bad subflooring, replace it and install a new water heater and new floor coverings.
The difference between these two houses is that we own the one in Chatsworth, but we master lease the Cartersville house. That means all the repairs for the Chatsworth house came out of our pockets. On the house in Cartersville, we notified the owners of the issues and they paid for their plumber to go fix everything.
Part of the beauty of owning rental property is that you get to write off repairs. This year on our rentals, we’ve done three field lines, one roof, lots of air conditioning calls and now this repair in Chatsworth. That adds up to about $30,000, which is a real out-of-pocket expense, not just a paper loss.
So, is owning rental property the best way to get out of the rat race and achieve long-term financial success? Currently, I’m thinking not. For us, owning notes and having master leases are what got our passive income above our monthly nut. That’s because notes have no expenses associated with them. What comes in is pure cashflow.
Repairing properties that you own can kill your cashflow. On the Cartersville house, because we master lease it, our cashflow did not change. And having steady, reliable passive income is the key to getting out of the rat race. Ownership may be overrated.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.