Thanks for posting, I’m a WSJ subscriber but had not seen the article. It highlights the reasons I have always avoided rental properties. I’m an advanced DIY person and often thought of getting rental units. Since I could do most maintenance tasks, I could keep costs low.
Then reality set in- you’re dealing with people and where they live. That means their problems can become your problems. It’s interesting that the article makes no mention of Covid effects on his renters abilities to pay.
Next, illiquidity of the asset. This guy has 40 tenants in one property. If he had 40 tenants across ten properties, he could sell one property per year over 10 years and lessen taxes. Even then, the liquidity of real estate is exponentially lower than money in a brokerage account.
I’ve only seen real money made in real estate when you keep tapping the growing equity and buying additional properties. Of course that leverage works both ways.
At the end of the day, I just can’t deal with people. Being a landlord is not for everyone.
You can and should make really good money with rentals. The single biggest key is to only rent to quality tenants - the easiest way to do that is to slightly underprice the market (massively increases the # of applicants, which increases probability of strong tenants if only 10-20%of rental applicants are strong). I underwrite all my rentals solely off ongoing cash flow and typically make 10-12% initially, plus principal paydown, plus appreciation. I sold off and started over after moving from one city to another (hard to manage when not local) and just getting going again but back up to 6 rentals generating about $35k/year in income currently (1 paid in full, 5 mortgaged - 2 of which I am splitting with family)