Getting Started as a Small Scale Landlord

Most of what I see about owning rental real estate is breathless cheerleading and come-ons for “real estate courses.”  It was a refreshing change to read John Champaign’s new short book Getting Started as a Small Scale Landlord.  At 67 pages, there isn’t any padding, and he provides solid information to help you determine if you’re suited to being a landlord and how to avoid the many pitfalls.

As someone who isn’t suited to being a landlord, I saw warnings where other people might see opportunity.  “This book is about giving yourself a part-time job.”  I definitely don’t want a job, but others might welcome one.  Landlords must also be able to keep their cool and not back away from conflict.  I can do this, but I definitely don’t want to willingly bring conflict with unreasonable people into my life.  “If you can't say no to a crying, homeless woman, do not go into the business of landlording.”

After the initial self-assessment to see if landlording is a good idea for you, Champaign quickly covers a wide range of topics with practical advice.  “In general, you don’t want to buy a property unless its monthly rent is at least 1% of its purchase price.”  Trying to make up for cash-flow losses with price appreciation “is a dangerous game.”  This seems like a showstopper in my neighbourhood.  With even modest homes selling for well over half a million dollars, a landlord would be looking for more than $5000 per month in rent.  That’s way beyond current rents.

Some excellent advice I had to learn the hard way: don’t “say anything to your [real estate] agent that you don’t want to be relayed to the opposing party.”  Don’t let your real estate agent convince you that your lowball offer would be insulting to the owner.  When selling, “Some agents will try to convince you your property is worth less than it is.  This makes it easier for them to sell or lets them deliver the sweet deal to a friend.”

When buying a property, Champaign likes to let sellers know that if they reject his offer, he will continue through with offers on other properties on his list and will come back with a better offer, but only if all of his other offers get rejected.  I find this an interesting way to be transparent and possibly motivate a seller to take an offer.

“Some [property] inspectors are known as ‘deal killers’ [by real estate agents] because they find problems and prevent deals from going through.  These are the guys you want to hire!”

When hiring contractors for repairs and upgrades, “Throughout the work, you want to always owe the contractor money.”  Otherwise, the contractor may disappear.

Screening applicants “is the most important part of real estate investing and, in my opinion, is what separates people who are successful from those who are not.”  “There is an enormous group of sub-prime tenants who are constantly looking for a rookie landlord who doesn’t do a background check or who will buy their sob story.”

“Real estate gurus will often recommend the use of property managers.  They do this to overcome sales objections.” “Property management companies will often get kickbacks for repair work from the company doing the work.  Some will charge owners for imaginary repairs.”  “A few will rent out units, not report that they’ve been rented, and pocket the money themselves or allow friends and relatives to live rent-free in a unit they’re reporting as vacant.”

An understated warning: “I recommend avoiding Robert Kiyosaki, Carleton Sheets, Robert Allen,” and their “‘free’ seminars.”

People have widely-varying definitions of retirement.  Champaign says that “real estate investing allowed him to retire at the age of 39.”  I don’t think of landlording as a form of retirement, but now that Champaign is no longer a university professor or computer programmer, landlording must feel like retirement by comparison.

Despite the fact that this book is only 67 pages long, I was only able to mention a small fraction of its useful rental real estate investing topics.  For anyone considering landlording, I recommend giving this book a chance to talk you out of this idea and, if you’re not put off by the warnings, help you avoid the worst landlording mistakes.