A lot of investors are touting REAL ESTATE as a refuge from the turbulent stock market — but forgetting the old real estate adage “location, location, location.” Not the property’s location, but their own.
Playing absentee landlord when you’re more than a two-hour drive from your property can be risky business. “There are a number of reasons why being an absentee landlord almost never makes economical sense,” says certified financial planner Phillip E. Cook of Cook and Associates in Torrance, California.
For instance? Hiring a management company, a must if you’re not nearby, digs into profits at a rate of at least 10 percent of gross rent. And don’t count on a relative who lives near the property to do the same duties at no charge. “It may sound like a good idea, but it’s the perfect petri dish for bringing problems into a family,” Cook says. Finally, some tenants develop a “cat’s away” mentality when the landlord isn’t able to check up on them, or the rent check, easily and regularly.
But what if the property you’re considering for purchase is a vacation home? The strategy sounds good: You and the family will visit a few weeks a year and rent it the rest of the time to cover the mortgage. The only problem, Cook says, is that vacation spots run through boom-and-bust times, and when your location fades in popularity, so does your mortgage money.
The best idea for investors considering becoming landlords is to own rental property in an area they know and can travel to easily. Even then, consider your personal qualifications as a landlord: Will you be able to raise rent on tenants you like? Will you be close enough to respond when problems arise? If the answers are no, even those “hot” real estate investments can end up costing you.