It’s probably not worth it around where I live to become a landlord of rental properties, but that’s because of the perceived housing bubble in Canada. In the States and much of the rest of the world however, many people are interested in doing just that. There’s something about becoming a landlord and renting out properties as a source of passive income that appeals to the masses.
Maybe it’s that we all know what it’s like to rent, so it’s easy for us to imagine what it would be like to be on the other side of the equation. It’s probably easier for us to picture ourselves finding tenants and fixing up issues on a home than it is to fathom researching investments extensively.
Owning rental units and collecting rents isn’t usually true passive income, however.
What is Passive Income?
Passive income is money acquired by doing.. well, nothing.
If you have to work for your income, it’s not passive. Examples of passive income include income made through interest payments from investments, and a few other methods.
Examples of active income (as I like to call it) include the income that you earn from your day job or business, and income you earn from selling things or your side hustles (such as freelancing, or contracting your services).
Why Isn’t Landlording Passive?
Becoming a landlord can take some work upfront and during the term of your tenant’s sublet. While renting out rental units requires less time typically than a 9-5 job, and is less labour intensive, you are still not making completely passive income.
There are a few things you must do prior to becoming a landlord, including finding the rental property, finding the right buy to let mortgage, researching rental statistics in your area, staging your new rental property for maximum price, showing the unit, screening applicants for potential tenants and finally, working with your new tenants to get them moved in.
After you are officially a landlord, you are responsible for any repairs, service calls and complaints that your tenants have, unless you hire a service to do that for you (but they tend to cost a pretty penny).
This can be very rewarding work, but it doesn’t fit the definition of passive.
Re-Looking at Renting as a Passive Income Stream
Just because being a landlord isn’t passive income, doesn’t mean it’s not a great way to earn income. After all, you have more time to yourself typically, than somebody who works a 9-5 job. You can also set your own hours and build great relationships with tenants to ensure a long-lasting tenancy.
If you have tenants who have been in your unit for a long period of time and have no intention of moving, the work of landlording can become much more passive as time goes on. They still may call you if the dishwasher breaks, but the work is often front-loaded when it comes to actually finding the tenants and screening them, plus fixing up the place for the next set.
Have you ever considered becoming a landlord? Have you considered it passive income?
I think it’d be great if you could secure a good property manager. But even then, there’s no assurance that the value of your house will always increase- as we saw with the burst of the housing bubble here in the states a few years ago.
Agreed. Being a landlord sounds like a lot of work, but I still would love to have a rental property one day 🙂
My mum and dad own a few houses that are paid for in the UK. They have had renters for years and all that money goes back into their pocket. Sure they have maintenance like every other homeowner but they also enjoy the perks of having houses paid in full and money coming in. 🙂
My aspiration in life!
After just going through the process of screening tenants for a newly inherited rental property, I can attest: Landlording is a lot of work! We’re also going renovations on the property to prepare for the Aug 01 tenancy. Also lots more time. I just hope the tenants we’ve settled on work out so we don’t have to go through the process again for a while.
I own one rental property and I definitely wouldn’t consider it passive income. Most of the time there isn’t much work to be done but there is occasionally the extra stuff that comes up once and a while along with inspections, maintenance, coordinating or performing any renovations – and that doesn’t include the process of finding/screening tenants
Definitely on my plan of creating wealth is real estate. My plan is to rent out my house that Im getting within the next year and pay off the mortgage as soon as possible so I can get another house by end of 2015. This is the reason I got a fixer upper on the beach, it’s a bargain but the location is prime location since its where tourists from all over the world come to stay so it makes it a great vacation rental as well if I choose not to rent it out all year.
It’s definitely something that I’m considering in the future, or at least renting out a room in a house I buy in the future. It all depends on the housing market though, I live in Toronto and prices are just skyrocketing.
I rent out my house and enjoy being a landlord. With that said though, it certainly is work. I fear many will jump into rental real estate and find that it takes a lot more work than they think. They are just buying into the idea monthly income, but finding great properties is hard work in itself.