The housing bubble collapse badly affected my plans to sell and made me an accidental landlord . Now, I'll loan you my opinion on the many benefits of being a landlord.
Hitting Too Close to Home
Despite my obsession with both Ryan Gossling and Steve Carrell, I haven’t yet seen “The Big Short
” because the housing bubble collapse of mid-2000s got personal (literally). In 2004 I purchased my condo for $196k and then put about $25k of equity into it for a new kitchen, laundry appliances, and roof contribution. Fast-forward a few years and I was ready to upgrade to a new place. Unfortunately, 2 of the 4 units in my building had recently foreclosed with comps on the books as low as $110k - far below my assumed value of $221k; how was I to compete?
Becoming an Accidental Landlord
Since staying put in my home wasn’t an option, the only viable move for me was to postpone selling and to become what I like to call an accidental landlord. Typically, I would have weighed the pros and cons before making a choice of this gravity, but knowing how under-water my real estate was - I swiftly rented my unit to some tenants and moved on with my life. Only with time and endless conversations on the topic have I realized the benefits of being a landlord and what a blessing in disguise this has been for my financial situation.
Reaping the Benefits of Being a Landlord
- Passive income: While my $1150 rent check barely covers my $900 mortgage payment and $250 association dues, I generate $300/month by the mortgage portion that is applied to my principal balance (i.e. building wealth over time).
- Leverage: Speaking of a mortgage, there are not many other appreciating assets that qualify for a loan to fund your investment in the first place - so I might as well use someone else’s money to make my own.
- Tax deductions: My return every year benefits from a variety of savings on mortgage interest, property tax, operating expenses, depreciation, and repairs.
- Portfolio diversification: Property serves as just another element to my financial diversification mix (balancing out the cash, stocks, bonds, etc.) that minimizes the impact that any one securing will have on the overall performance.
- Entrepreneurship: Renting isn’t without risk (i.e. unstable income streams, bad tenants, expensive repairs, illiquid asset, active involvement, etc.), but the sweat equity I put into my unit pays dividends in terms of management skills and other personal returns on investment.