This college student says she lives free in her uncle's investment property but collects rent from her friends and pockets the cash — is she 'greedy' or resourceful?
Mixing business with friendship is almost always a tricky proposition. And a college student had to learn that the hard way when she tried her hand at being a landlord to her school friends.
Reddit user, EqualBudget_3179, recently posted a cautionary tale on the site after her uncle let her live rent-free in one of his investment properties and collect rent from three other tenants to help pay for her expenses.
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EqualBudget_3179 offered their friends these extra bedrooms for $700 per month each – a good $200 to $800 cheaper than other houses near her college. They all immediately said yes. But when one of them asked about the total cost of rent, the friends freaked out when they found out the arrangement with her uncle.
“That blew up in my face because now every [sic] one of my friends [is] calling me greedy for charging them rent then pocketing the money,” EqualBudget_3179 writes in her post. The Redditor goes on to write that she ultimately decided to ask them to move out.
“My uncle gave me some advice … Never mix money with friends or I might lose both.”
There are certainly challenges that come with being a landlord. Here are some pros and cons to help you decide if it's a life for you — along with some stress-free real estate investing alternatives if it's not worth the risk.
The pros
While being a landlord can be a lot of work, the time and money investment does have some serious appeal. Rental properties are assets that generate monthly income and allow you to benefit from any price appreciation in the long term.
Rent prices went up an average of 5.45% over the last year – and over 30% in some New York and Florida towns, according to a SmartAsset study that looked at rent prices in over 1,800 U.S. cities. And with 93% of single family homes currently occupied, demand for rental units is high. This means you could be more likely to have your pick of prospective tenants and get your unit rented in a shorter amount of time.
If you decide to sell the property, then having the rental unit may add more appeal for prospective buyers.
Whether you sell the property or you have that extra monthly income coming in, the extra cash can be part of your retirement nest egg or provide you with the cash to invest to further build your portfolio or even buy your next home.
Read more: Thanks to Jeff Bezos, you can now use $100 to cash in on prime real estate — without the headache of being a landlord. Here's how
The cons
But it’s not all fun and games being a landlord, as the young Reddit poster discovered.
This is particularly true if you end up with tenants who fall behind on rent. Roughly 13.7% of American adults who are currently renting are in this position, according to a 2023 study from LendingTree.
If your rental income is helping to cover the mortgage on the property, make sure you have an emergency fund to tap to make the monthly payment if your tenants are late with rent.
Even experts like Dave Ramsey have warned that being a landlord can feel like you’re on a “crazy train.” On a recent episode of the Ramsey Show, he advised one caller — a frustrated property manager — to “take a break from crazy. Go get you a house.”
If you have a renter who doesn’t pay for months on end, you’ll have to evict them – and you wouldn’t be alone. Over one million evictions have been filed by landlords in the U.S. over the past 12 months, according to data from The Eviction Lab.
Renter rights vary from state to state so you’ll need to do your research before embarking on this venture to know exactly what you might have to deal with in a worst-case scenario.
For example, California has an eviction process that takes a minimum of 30 days. One California couple made media waves after they reportedly lost $15,000 trying to get their problem tenant out. If the problem can't be resolved privately, you may need to take your tenant to court if they don’t comply with your eviction notice, adding more time, money and stress to the process.
Investing alternatives
If you have come to the realization that the hassle that can come with tenants isn’t worth the possible payoff, buying a home or rental property isn’t the only way to invest in real estate.
A real estate investment trust (REIT) is a lower-cost and lower-risk way to benefit from the renting boom. REITs are publicly traded entities that own and operate residential and commercial properties that generate income. A percentage of the profits are then distributed to shareholders in the form of dividends.
If you're looking to dip your toe into real estate, there are also crowdfunding platforms that allow individual investors to buy fractional shares of bigger property deals. This option can offer very affordable minimum investments, similar to investing in mutual funds or REITs, as well as larger investment opportunities for accredited investors.
You can also consider exchange-traded funds (ETFs), which offer investors the opportunity to invest in a preselected basket of securities. There are many real-estate options to consider including giants like Vanguard Real Estate ETF (VNQ) and Real Estate Select Sector SPDR Fund (XLRE).
While ETFs and REITs are relatively easy to buy and sell on major exchanges, it’s worth noting they come with a fee — referred to as the management expense ratio (MER) — which is charged by your chosen firm in exchange for managing the fund.
If you think taking on the mantle of landlord is too much, you have plenty of accessible options to build the real-estate portfolio of your dreams.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
