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But rental property investing isn’t passive!”
If I had a dollar for every time I heard that objection, I’d be a millionaire WITHOUT even owning rentals!
Sure, rental properties can make you a millionaire. And of course, rentals produce excellent monthly cash flow.
But who wants another job dealing with tenant problems or midnight calls about a stopped-up toilet?
Or so the myth goes.
Unfortunately, this myth keeps many would-be rental investors from ever starting in the first place.
So in this essay, I want to debunk the myth once and for all. Using my 21 years of experience as a real estate investor, I’m going to share the truth about how passive rental properties really are.
Passive Compared to What?
Asking whether rentals are “passive” is actually not a very good question.
Nothing is 100% passive.
A better question is, “Passive compared to what?”
Rentals Are More Passive Than Your Job
Compared with the jobs of average Americans who work almost 40 hours per week, rentals are much more passive.
21 years after starting, I spend 2 hours per week on my rentals. Most of that time is spent doing bookkeeping or communicating with my property managers. And the occasional problem (which my manager usually handles) is much less stressful than job problems.
And unlike a job working for someone else, my time on rentals actually makes ME wealthier instead of someone else.
Rentals Are More Passive Than Owning A Business
According to a survey by the Alternative Board, 81% of business owners work 40 hours or more per week. And 19% work a whopping 60 or more hours per week!
I’ve owned several businesses, both inside and outside of real estate. So, I can confirm this heavy workload.
And even my rental properties required more work in the early days. But rental properties are different from a regular business.
After the early days, rental properties are easier to systematize and outsource. In almost every city in the county, you can find property managers taking over leasing, maintenance, and rent collection. And even without property managers, I’d take managing 10 tenants over managing 10 employees in a small business any day!
The right tenants in the right properties pretty much manage themselves!
Rentals MIGHT Be As Passive As Stocks And Bonds
Now we’ve come to the ultimate passive investment comparison – rentals vs. stock and bonds.
And I can already hear stock investing fans like the Bogelheads saying, “Surely Chad, you aren’t going to tell me that rentals are more passive than index mutual funds!” Index funds are the vehicle most small investors use to own stocks and bonds. It’s a collection of investments that makes them VERY easy to own and diversify.
And no, I’m not going to tell you that rentals are more passive than index funds. I own them both, and at least for me, rentals are definitely NOT more passive.
But that’s not the whole story.
I also know people who spend more time worrying about their stock investments than the 2 hours per week I spend on rentals.
More Passive Means Less Control
The flip side of completely passive investments is that you have no control.
As an index fund owner, the only thing you can do when you’re worried is to manically watch financial news or flip through financial social media. And as studies show, these panicky emotions lead many passive investors to sell or to buy at the worst times. This also means they often get a lower return than they should as a result.
So, if losing control of a portfolio of mainly stocks and bonds makes you lose sleep at night, you might want to diversify a little or a lot into rental properties!
Rental investors typically thrive having more control. Instead of passively depending on the market, they like to use the IDEAL benefits of real estate to influence their financial success. And those benefits, like increased income, use of leverage, and tax savings, make rental properties worth the extra time and effort.
Plus, experienced real estate investors realize that most of their effort is front-loaded anyway.
Begin Like a Start-Up, End Like a Blue Chip Stock
With my own story, I don’t want to mislead you into thinking real estate was always passive. It wasn’t. Early in my career as a full-time investor who bought, sold, and rented properties, I had plenty of 60 and 80-hour work weeks.
But I’ve learned that rentals begin like a start-up company and end like a blue chip stock.
During my start-up phase, I had to contribute lots of effort and time. It was like a down payment on financial independence. I had to learn, build a team, buy properties, and gain momentum.
But in the end, with a stabilized portfolio of the right rentals, it becomes very easy to manage. My properties attracted great tenants who stayed for a long time. And my team and systems allowed me to spend a lot less day-to-day time on real estate.
Rental Properties Are Passive Enough
And here’s the bottom line with this whole idea of rental properties not being passive.
Rental properties don’t have to be completely passive to accomplish 100% of your goals. They just need to be passive ENOUGH.
In my new book, The Small and Mighty Real Estate Investor, I share stories of investors living their dreams because of rental properties:
- One couple retired and moved to Portugal.
- Others moved to part-time work to spend more time with their kids.
- Still, others took mini-retirements to travel the world while still young.
In all of these cases, rental properties paid for all or part of their dream lifestyles. And the time spent managing those investments never got in their way. They all forgot to complain that 2 hours, 5 hours, or even 20 hours per week working on rentals wasn’t completely passive.
They forgot because they had ENOUGH money and ENOUGH time to do what matters!
And isn’t that why we invest in the first place?
Choose the Right Investing Vehicle For YOU
If you’re reading this, perhaps you’re on the fence about whether to invest in rental properties.
I’m not here to convince you that rental properties are right for everyone. You’ll know if you’re comfortable investing in rentals. And if you’re not, that’s ok too!
But just remember that choosing a strategy to achieve financial independence isn’t a contest of “which investment is most passive.” It’s simply a choice about what strategy will actually work for you! And in the end, which strategy is passive enough to give me the life I want?
I’m clearly a fan of rental properties. It’s the primary vehicle I used to achieve financial independence in my 30s. And I think it can work for you too if you’re willing to learn and put in the up-front work.
To help you, I’ve written a new book called The Small and Mighty Investor. It’s a step-by-step guide that shows you how to build your own small rental property empire.
You can pre-order here, a copy and get a chance to win some amazing bonuses, like 1-1 coaching from me!
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