Passive Income: The Pros and Cons of Rental Income, Part Two

If you are just now joining us in our discussion about making a passive income through rental income (being a landlord), you need to stop your eyeballs in their tracks and go back and read the first part which contains the pros of making income as a landlord. This part is all about the downside to making a passive income by renting out property.

The Consequence in Cons

Now, to every set of pros, which you should have read about in the first part of this two part series, there are cons. Here they are:

You Are Responsible – Your property, your responsibility. If your name is on the mortgage, you are responsible for paying the mortgage, maintaining the property, and making sure that the people you have as tenants aren’t war criminals from Cameroon. When the mortgage payment date rolls around, it is your responsibility to make sure the money is in the bank for payment—whether or not your tenants have made their payment to you. Yes, this requires you to take risks, but that is why this is a con. You’re in the rental business to make income, but sometimes you have to suck it up and go through periods of money loss (see the last con in this list).

You DO Have to Do Some Work – Rental income isn’t totally passive. You can’t just rent out a property and leave it alone; you have to maintain the rental property. Maintaining a rental property may just require you calling the plumber or carpenter, but sometimes it may require you to get your hands dirty and pull the wallet from your pocket in order to hire a contractor to replace a floor or repair a bathroom shower. If you’re a hands-on landlord, you may literally have to get your hands dirty performing repairs. Also, it takes work to run the numbers, balance the books, and make sure everything is running smoothly in the finances department. Money doesn’t do well when left to its own devices.

You are Liable – As a landlord, you are responsible for nearly everything that happens on your property, if it isn’t a result of tenant carelessness or negligence. If a fire starts, the first place they will look is at YOUR electrical system. If a pipe bursts, the first thing the tenants will do it call YOU. If the roof caves in, you are liable for any property damages and any injuries to the tenants or their property. Passive income through rental income can be a serious pain in the butt.

You Might Lose Money – Sometimes there will be dry spells when you cannot find a tenant if your life depended on it. When those dry spells arise, you will find yourself desperate for any kind of income to offset the amount of money you’re spending on the mortgage. Sometimes you’ll have to suck it up and lower the rental price so that you can get something, anything to help out. Your mortgage is $2,800 per month (including insurance and taxes), but people can’t seem to afford that kind of money, so you gird your loins and lower the rental price to $2,000 and eat that $800 for breakfast, lunch, and dinner until the economy springs back. This is why it’s important to put some of that passive income aside for a rainy day.

Now that you know a little bit about how making a passive income as a landlord works, you may decide that this isn’t as easy as it sounds. That may be true, but consider that fact that real estate may flip and flop over the years, but when the high times come, you can make a serious amount of passive income, if you do it right.

Can you think of other cons when it comes to rental income? Are you a landlord currently? Share your experiences with those who are thinking about taking the plunge!

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