Your Rental Property Is Not Passive Income: Understanding Why Owners Are Responsible for Vacancy, Repairs, Leasing, Recordkeeping and More!

BY JULIE NEWMAN

Owning a rental property is a tremendous way to build wealth, though far too often owners assume that it is passive income because they are earning a steady rental payment.

There is a steep learning curve for a new owner, as there is much to do besides just pocketing that sweet, sweet monthly payment. From maintenance to tenant communication to leasing, recordkeeping and more, rental property owners have a lot to juggle.

In short, if an owner isn't prepared, they run the risk of turning their cherished investment into a hustle instead of a passive income stream.

Key Takeaways

• Rental property ownership requires more from an owner than just the pleasure of collecting rent each month.
• You may spend more than you realize on vacancies, upkeep, tenant communication, repairs, leasing fees and more.
• If you do not want to self-manage, a property manager is there to take care of the small stuff so you can focus on the big picture.

Your Rental Property Requires Year-Round Maintenance

While it is obvious why an owner would want to maintain their rental property, many fail to acknowledge that property upkeep is more than just fixing a leaky faucet.

Inspections, preventive maintenance, call outs and even proper interaction with vendors needs to be monitored and documented to ensure that the property is in the best condition possible.

It is important to have systems in place for everything from regular maintenance work to sudden repairs. It is also essential that your vendors are reliable, that work is performed properly and that every repair/interaction is properly documented for your reference and the tenant's.

Tenant Communication Requires Time and Thoughtful Interaction

While collecting rent is a huge priority for any landlord, communication with one’s tenant(s) is not to be overlooked.

Whether it regards property repairs, maintenance or living condition complaints, a timely response is always a plus. Cultivating positive relationships is what good property management is all about.

Be sure to discuss with your tenant - the move-in/move-out procedure, your pet policy, tenant alterations, subletting rules, etc. Someone must answer those pressing tenant questions.

If you're doing it yourself, that means possibly answering tenant questions outside of business hours. Furthermore, effective communication reduces unnecessary tension and misunderstandings which can negatively impact your property as well as your nerves!

Vacancies Can Cut into Your Earnings 

Vacancies cost property owners money. In addition to lost rental income, owners may face expenses for repairs, improvements, and turnover between tenants.

A strong leasing strategy and a clear understanding of the local market can help reduce vacancy time and maximize a rental property’s income potential.

Tenant Screening Involves More Than Credit Scores

Tenant screening is a must and reduces the risks of renting out a property. Landlords must make sure to have screening and leasing criteria in place, hold to that standard, properly document and communicate while familiarizing oneself with relevant housing laws.

It is crucial that owners keep in mind that screening goes deeper than a credit score. Tenant selection is an essential part of the property management process. That is where we come in.

Documentation Is More Important Than You May Realize

Few landlords will outright admit it, but property recordkeeping is an easy task to overlook and a difficult one to commit to. Many people just do not like the paperwork.

Everything a landlord does pertains to their rental records, whether it be rent rolls or repair logs. Keeping thorough, up-to-date documentation allows for a more precise understanding of a property's standing and potential as well as future decisions in regard to capital improvements, cost control, rent determination or other investment strategies.

Rental Income Is Not Profit

Having a nice income of $2,000 or $2,500 per month is a nice number to see. After all, isn't that basically pure profit?

Well, no, not really. Gross rent payments are not the sole determinant of your property's performance. Several other operating expenses need to be considered, including property taxes, insurance, repair/replacement, vacancy, turnover, operating expenses, financing costs and more.

An owner should keep in mind the full spectrum of expenses when determining how their property is doing and answer the question “What is my true Net Income?”

So, Is Owning a Rental Property Really a Passive Income?

It all depends who is managing the property on whether it is passive income to the owner. There's nothing wrong with wanting retirement or passive income. The reality is ownership of a rental property is not a set-it-and-forget-it kind of investment.

Many investors are hands-on when it comes to their property: tending to tenants, handling repairs, keeping meticulous paper trails, answering those late night calls and paying close attention to the local area and more.

Others may not have the time or inclination to do it themselves. Perhaps a full-time job leaves them without the extra bandwidth, or they simply would rather enjoy their retirement rather than spending time on property management tasks.

Either way, property management is quite the tightrope to walk. In the end an owner simply must know what they are getting themselves into and make sure their investment is being looked after. That may mean having a hands-on approach or delegating the responsibility to a professional. Everyone’s goals are different.

FAQs

1. Is rental property passive income?

Rental income does have some characteristics of passive income, but a property is not a set-and-forget investment. An owner must handle any number of issues: property upkeep, tenant communication, vacancy, leasing, expenses and more.

2. What are the biggest responsibilities of owning a rental property?

Some of the biggest include property upkeep, tenant communication, vacancies, leasing, document management, expenses as well as local knowledge of the market and legal compliance.

3. Can I manage my rental property myself?

Absolutely - a property owner can always manage their own rental. However, owners should be aware of the responsibilities that go along with it as well as understand the time commitment involved with everything from maintaining the property to communicating with the tenant(s), handling vacancies, leasing, bookkeeping, etc.

4. How can a property manager help a rental property owner?

A property manager can help a landlord by taking on many of the day-to-day responsibilities involved with operating a rental. This may include leasing, tenant communication, maintenance coordination, property inspections and owner reporting. When a property manager is hired, the investment becomes more like passive income to the owner.

5. How do I know if my rental property is performing well?

Rather than just the gross rent, consider vacancy, maintenance, turnover, expenses, financing and other costs when analyzing the performance of a rental property. If you need assistance with such a review, Softwind Property Management provides the tools to help you identify problem areas and maximize your return on investment.

Let Softwind Help You Spend Less Time Managing Your Rental

Softwind Property Management helps Concord and surrounding area property owners by taking on the day-to-day responsibilities of managing their assets while ensuring their investment goals are being met.

If you are concerned about whether your asset is truly performing up to its fullest or simply don't have time to tackle the daily details, Softwind Property Management is here to help. Need guidance on how much your property could rent for? Ask about our Free Rental Analysis.