Rental properties are a popular investment tool on the way to financial freedom, but owning and maintaining rental properties are two very different things. On a recent episode of the Crush Your Money Goals podcast, host Bernadette Joy highlighted some of her experiences in being a landlord, "I learned first-hand up being a landlord and managing rental properties is not as easy as it looks on Instagram and so ultimately I recently decided to take a break from it. Between the management requirements and the financial cost I want you to know that, while things can be really great and it absolutely help me build my finances toward financial Independence there are also very real challenges that should be considered before becoming a landlord". Here are four ways being a landlord may cost more than you planned.
1. Finding bad-quality tenants
"Finding quality tenants can be a long process. You will need to conduct a background check and a credit check and that can get really expensive if you can't find good tenants, because you're in that process for a long time... We had to sort through dozens of applications and running background checks every single time and often we would find someone who would have bad credit or even questionable income. We ended up having new tenants almost every year so we had to go through that process pretty regularly just fighting new tenants which wasn't really built into our rental process or what we were expecting to profit"."
2. Maintenance and repairs on your rental property
"Maintenance and repairs on your rental property can add up to a significant sum of money. Think about the cost of maintaining, repairing or even replacing major appliances or flooring or windows. The property being rented out may be generating income, but the cost of keeping it in shape to rent can cost thousands of dollars... Many landlords, especially new ones, are not prepared for the costs associated with maintaining the property, they're just employing the hope and pray strategy which is like oh my gosh I hope and pray that nothing bad happened. But, when you are a landlord you cannot ignore leaky toilet or broken air conditioner. And, if a tenant asked for a repair or notifies you that something in the rental is broken, you have to take care of it. I do believe that there is a responsibility as a landlord to make sure that you're giving good livable living conditions, and this can cost you a lot more than you were expecting to spend."
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3. Preparing the unit to rent between tenants
"Getting [the property] in condition to rent can be very costly, and every time a tenant leaves, the property must be put back in stellar condition for a new tenant (especially if you want to be competitive). To find tenants you are going to have to take care of your place... Rental property repair can show up when you least expect them. We once had a nightmare tenant where we has no idea how much they had damage the property until they were ready to leave and when we came into the property we found water damage, red paint splattered all over our hardwood floors, stains and smoke stuff on the walls. It was not a good situation, and it was several thousand of dollars to repair. Any profit that we might have made from rent was just going right back to repair the property, and that is not what we had hoped for. So just remember: If you are a landlord it's not just the cost to fix it the property the first time, it's the cost of physical property every time you rotate tenants coming in and out."
4. Unexpected issues
"If you don't use a management company to handle a rental property you are going to be the one receiving all those emergency calls. I learned very quickly that owning rental property can be a full-time responsibility just like a nine-to-five. Especially if it's a rental property that you know isn't brand new... I was getting stressed out thinking about some of the things that were happening that we're out of our control... Being a landlord is a lot of work and you have to decide whether it is worth it or even sustainable given repair costs, the work it takes to find quality tenants, and the unexpected hassles and emergencies that will eventually happen."
Thankfully, solutions like Steadily landlord insurance provide peace of mind and financial protection against many of the risks highlighted above. SVP of Growth and Partnerships, Adam Swearingen, joined Bernadette to discuss some of the ways Steadily landlord insurance can benefit real estate investors. Check out the transcript below, or listen to the podcast to hear the full conversation.
How Steadily Insurance Can Help
Transcript from the Crush Your Money Goals Season 4 Episode 4 Podcast
Bernadette: Welcome back guys I am so excited to introduce you to my new friend who we met at FinCon and he is also part of a team that is sponsoring a this season's podcast: Steadily Insurance! His name is Adam, and we're going to learn from him more about how technology in insurance is really changing and how that can help reduce some of the stresses that I talked about earlier this episode about being a landlord. So, Adam is as the Senior Vice President of Growth and Partnerships at Steadily and they use technology to help landlords like me and you and Real Estate Investors get fast and affordable insurance for any property type across all 50 states. In his role he works directly with investors, he also partners with companies of all types to solve insurance for their customers, and before this he was actually in senior leadership at another technology company serving their real estate and Property Management industry. Welcome Adam! The first question I want to ask you to share with our listeners a little bit more about Steadily and how Steadily can ease the pains of being a landlord like what I talked about earlier.
Adam: Absolutely, and so I think we need to think about what we're setting out to do at Steadily. We're trying to make getting insurance and the experience of working with a company to obtain an insurance, but the claims process and everything involved with working with us. The goal is to be a delightful and modern experience. Steadily is created because we saw a need and felt the experience being landlords ourselves of going out and trying to get insurance. Quite frankly it was painful. It takes days if not weeks to get quotes and the old Golden Rule is you should always have at least 3 competitive quotes to make sure you're getting a good deal. And, it takes a lot of time and effort so we wanted to simplify that and that's that's what we're setting out to do.
Bernadette: So a lot of people on the podcast don't know that my first job out of school was an insurance company and delightful is not the word that I would use with it and that leads me to my next question which is there's a lot of common misperceptions about insurance like it's going to be arduous like it's going to be painful definitely delightful was not a word that I was thinking of previously. So, how are you guys actually making this a delightful experience?
Adam: Well, on the front end what we're doing is we're using technology to limit the amount of questions that you have to answer. So if you were to call your local insurance agent down the road and get insurance on a property they're going to ask you a litany of questions about when the home was built and how many square feet, and list goes on and on. And, we're a company that pride ourselves on our technology and our data partners to be able to pull that information in so that we don't have to ask that information. We can show you, you can validate it, but you don't have to go in, search and find an answer to all those questions. So, on the front it's very streamlined and fast to to get a quote and get a quote in the matter of 15 seconds or less. Aside from that, after you become a customer or our goal is to keep you as a customer and to consistently and constantly overtime keep looking out for you and your investment and your protection, n so you know keeping customers long-term is the ultimate goal. For the claims process we really go above and beyond to take care of our clients and provide a full customer service to the point where you know we get really high ratings reviews and that's pretty hard for an insurance company to do.
Bernadette: That's amazing, I used to work at a claim's office, and just hearing some of the calls sometimes like wow. People don't need insurance when things are going hunky-dory people, they only call insurance when things haven't gone well right so a smooth claim's process definitely can take a lot of stress out of it. So, I would love since you are doing a lot of partnerships and you probably heard a lot of stories of what Steadily has done, can you share a specific example of a landlord or someone that Steadily has helped to avoid some of that major pain that you talked about?
Adam: Yeah so I think you know the first thing that comes to mind even pre-hurricane Ian, the Florida Insurance Market has been challenging this year to say the least. There have been over a half-dozen carriers that unfortunately have gone insolvent and you know the insurance industry in general in Florida is in a really really bad place. So if the unique position that Steadily is in, is that we're a carrier, we're an MGA, but also an agency that has 30 + partnerships with other carriers to go and work with and seek out coverage for a client, and you know anybody looking to get a quote. So working with an investor and they went through all the due diligence to purchase the property, they're at closing and all of a sudden they got hit with a sticker price on insurance of $40,000. And so obviously they about fell out of their chair and said we can not do this deal this is not obviously going to work, this is meant to be an investment and now this is an expensive. These numbers just don't add up. And so our partner called me and said - Hey we're in a bind can you help us here? - and I was like yeah, let's see what we can do. And we were able to shop them around and find some carriers and some coverage for them that made the deal work. That's one recent example. Again, pre Hurricane Ian, but it's only going to become more important for folks who are in coast or high-risk areas to really shop around because the insurance markets changing very quickly.
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Bernadette: I am already learning a lot just from this conversation, because you're right, my immediate thought didn't come to what was recently. That was very recent that hurricane and you know unfortunately it's probably not going to be the last of hurricanes that we're going to see. And we often forget that a lot of these homes that we've seen that have gotten impacted are not just you know people who live in those homes but people who have invested maybe life savings right as an investor like that was their retirement plan that was their generational wealth that they were going to give to their family. And there's this misconception that people think that. I got this this comment on Instagram actually about my post about Steadily someone said a lot of people think that landlords are like sitting on the beach in Jamaica or something like they're rich and most of these investors ever talk about her everyday people who also have families who also have things that they're working on, and so I love that you guys are doing this America's best landlord contest. I also I think it's such a good hashtag, #Americasbestlandlord. And, I would love your thought: what does it mean to be a great landlord? Like what do you think of a great landlord? What do you think makes a great landlord?
Adam: You know the first thing that pops in mind is quality customer service. Anyone - whether your a tenant or a guest of a short-term rental - the expectation is things can happen, it's life, but when things do happen that you know you expect prompt service and expect for things to be addressed at the at the level and sense of urgency that's needed. That's the first thing that I think about. And then secondly, it's for a great landlord tonot forget the people factor. That these are lives and a roof over a head and a family that could be impacted. And so doing the right thing and it's harder most would think but you know being able to just do the right thing and knowing that it's going to pay off in the end and some way and some form - that to me is being a great landlord. Not just thinking about you know the rent check or the situation right now but the long-term.
Bernadette: I love that so much. And, I thought I'd have a little fun with this last question. So the prize for the America's Best Landlord contest is $10,000 aside from being part of Steadliy's blog and social channels, getting a pass to BiggerPockets BPCON, and you can also a TurboTenant premium membership, but the thing that caught my eye and 10000 dollars in cash. So if you got the $10,00 (and I know you're probably not eligible as a Steadily employee) but personally if you wont the $10,000 what would you do? As a landlord, what what are some ideas you have on how to use that?
Adam: You know I think personally I don't want to put pressure on the winner or you know trying to influence what they would do, but personally I would probably try and figure out how to pay it forward you know I would I would I would try and recognize some some renters or clients that have a need or any vendors. That's another thing that's another area that I would look because you know contractors out there are working around the clock and working late hours. And so I don't know, would personally try and d pay it forward to somebody that that would would would benefit even more than I would.
Bernadette: Oh my gosh that was such a better answer than what I would have said. People know me on this podcast know I'd say I would try to pay down the mortgage, and try to shave off some interest or whatever it is. But, I will say that I had a wonderful you guys heard about to my horror stories as a landlord but I had this amazing tenant who stays in touch with me on LinkedIn and he was now a tenant maybe 8 years ago and he left me is like the nicest message the other week to say he's been following my financial independence journey, he loves to tell people that word at one point and I would have loved to just give him no one month's worth back to him. Before he was the best tenant I ever had. He kept a really good care of the property and he had referred our next tenant after him after he bought a home. And, so I would have loved to in hindsight have given him a little referral bonus for that tenant that he gave us. So, there are so many cool things you can do with the $10,000. I so appreciate you and the team at Steadily for doing this contest and for supporting this podcast and I hope that you guys all check out Steadily.com and if you are thinking about being a landlord you don't have to be a landlord to join the contest you can be anyone who has a great story to tell about what it mean to be #America's best landlord.