By far, the most time-consuming part of being a landlord is getting your rental business started. While there are time commitments at every stage of rental property ownership, once they are up and operational, the time commitment becomes minimal (especially if you have a property manager). In this article, I will outline the time commitments of setting up your rental property business, give some suggestions on how to deal with the time commitment, and discuss what’s ideal in the long term after your property is stabilized. Let’s start with the time it takes to get started.
Getting Started:
In the beginning stages of your rental property journey, you’ll have to make up for what you don’t know with time. When you set out to purchase your first rental property, you’ll face numerous unknowns along the way, and it will take a decent amount of time to research, make a plan, and then execute that plan. Typically, your time commitment as a beginning rental property owner will be 3-4x the amount of time you’ll spend down the road after your company is more established. Below is a list of time-consuming tasks that you’ll need to account for when you first get started.
- Establishing an LLC. This should be one of the first things you do when you get started, and you need to take your time when finding a good, local attorney to help you. Typically, an attorney could do this in about a week, according to whatever his or her workload is.
- Building a Business Plan and Pro Forma. Building a good business plan could take as little as a couple weeks or as long as several months. I would advise to keep things as simple as possible when you’re first starting out. You can add necessary complexities as your company grows, but keep it simple at first. Remember, both business plans and pro formas are living documents, so you can make necessary changes over the years.
- Finding, Buying, and Renting a Property. This process could also take months, especially if the house you purchase needs several repairs. The time this takes will depend on the state of the market you buy in. Very competitive markets could take significantly longer to find and purchase properties that make good rentals.
- Getting a Lease Together. This includes all the researching, writing, and tweaking of a lease, as well as a meeting with an attorney to get the final lease and its changes approved. Many state realtor associations will have templates for leases that you can regularly download, however, I strongly recommend making the lease fit your individual preferences and having your attorney review it with you. I would say this whole process takes a few weeks from start to finish if you aggressively pursue it.
- Bookkeeping, Accounting, and Banking Set Up. In the beginning, you will have to set up every process and procedure of your company, and this is no small feat. Something that will save you a lot of time and trouble is having a CPA help you set up your general ledger and chart of accounts. This is something where an ounce of prevention is worth a pound of cure. Someone who has experience in setting these things up is absolutely worth hiring to help you on the front end; this is especially true if you don’t have any accounting experience.
Working with the bank requires some time as well in the first year. You’ll want to set up processes for collecting and depositing your rent while keeping your loan officer informed of your plans for future acquisitions. I would recommend touching base at least once a quarter for 30 minutes, just to make sure you stay on the same page with your lender. At some point, they will ask for rent rolls and/or financials for your rental business, so you’ll want to make sure that you have everything in order so you don’t look like an idiot.
Between all the tasks mentioned above, I would say it’s necessary to give yourself one full year to truly get up and running. You can break this time commitment down even further by viewing it as 5-10 hours/week if you’re working a full-time job.
Dealing With the Time Commitment:
While this time commitment may feel a bit overwhelming to you, I’d like to offer a couple pieces of advice. The first one is to start small. If you start small, your mistakes will be smaller and your time commitments to fix those mistakes will be minimized. Rather than starting with 5-6 rental houses, start with 1. After you learn the lessons you need to learn, you can begin scaling your business. The second piece of advice I’ll give you is to not get discouraged. Even if it feels like you aren’t making any progress in the beginning, you’d be surprised to look back after the first year and see how far you’ve come. It’s helpful to measure progress in terms of months rather than weeks.
To be successful in the rental property industry long-term, I think you need to realize that the time you invest pays off, just not instantaneously. Simply put, owning rental property is not a short-time game, and you need to keep this in the front of your mind and remember that there are no quick checks. I think it can be helpful to compare your rental property business to a farm. Sure, it takes a lot of hard work and time to clear a field, prepare the land, and install fencing, but once the cattle are there, you just have to manage and maintain the system that’s already in place. Similarly, rental property takes a long time to get set up, but once all of your systems and processes are in place, you can just step in as needed.
If you are married, it’s important to communicate the time commitment of rental property to your spouse to make sure the two of you are on the same page. Like everything else in life, there is a season of planting and a season of harvesting when it comes to rental property; it just happens that rental property has a long season of planting and growing before you can reap the harvest. Make sure you and your spouse can reconcile this type of time commitment together.
Next, let’s look at the time commitment of being a landlord after the initial start-up commitment.
Long-Term Time Commitment:
I’ve read that the average landlord takes 5 calls from their tenants every year. From my understanding, most of these calls are pretty simple: updates, check-ins, etc. Probably two of the five calls will be related to maintenance or the condition of the unit. In any case, taking a handful of calls a year, scheduling repairs if necessary, and stepping in as a middleman when required seems like a pretty good deal for a cash-producing asset that someone else is making the bank payments on.
So, how much time does it take to be a landlord after the initial year or so? If you manage your own properties and end up owning multiple, I would estimate 5-6 hours a week. If you hire a property manager, I would guess you only need to give a few hours a week to your rental property business.
Again, if you take the time to set up your processes and systems in the beginning, your time commitment will be very low in the long run. To keep your time commitment as low as possible, I would recommend that you standardize all your operations so that your business practices are the same across the board. Standardizing your company will also help it run more efficiently, ultimately reducing the “noise” that comes with owning a business. Rather than accommodating and customizing tenant experiences (i.e., collecting rent on different days, making special installs or adjustments to properties, etc.), keep it simple to minimize your headaches and maximize your efficiency. Of course, you can make the occasional exception, but for the most part, try to treat every tenant and rental unit with the same standards and practices.
In Summary:
- By far, the most time-consuming part of being a landlord is getting started. Expect at least a year-long process to get your business set up.
- If you are married, be sure to communicate the time commitment of running rental properties to your spouse. Expect a long period of planting before you will harvest.
- After you establish your systems and processes, the time commitment of owning rental property diminishes considerably, especially if you hire a property manager. To keep your time commitment low, be sure to standardize your operations and practices across the board.