A Warning For Landlords | Expectation vs Reality

What's up you guys? It's Graham here. So we got to have a serious sit-down conversation today and talk about the business of investing in real estate, owning rental property, and more specifically becoming a landlord.

Because I'll admit it's easy to glamorize the lifestyle of buying properties, just chilling on some beach somewhere, relaxing, and then collecting rental checks every month. I mean, after all, that was the idea that I had in my head when I began investing in real estate. I just imagined that doing this would allow me to slack off from work. I could goof off a little bit during the day and wait for it—get paid for doing nothing.

And if I'm totally honest with you, yes, that is exactly what real estate is. It's absolutely amazing. No, I'm kidding; it isn't quite like that, but it can be, in a way. At this point, after almost ten years of being in the business as a landlord, I pretty well have it automated so that I can make, right now, about seventy-eight hundred dollars a month in total rental income profit. It only takes me about an hour a month to manage, and a lot of the time that's just done through my phone. So it could be a great business to be in, and it can be fairly passive.

However, getting to this point wasn't without a lot of mistakes, a lot of trial and error, and a lot of money wasted on stupid oversights that could have entirely been avoided had I watched a video like this one first. So this is my warning to any current or future landlords out there: Exactly what mistakes you need to avoid and the steps you need to follow if you want to create a passive income source that allows you to do nothing all day but smash the like button for the YouTube algorithm.

There we go, I had to say it. I've noticed it makes the biggest difference if I mention it within the first 45 seconds of a video, so there you go! I had to say it. So with that said, here are my most important tips if you want to be a successful real estate investor and landlord, and all of the mistakes that I have learned firsthand, the hard way.

First, if you want to be a successful real estate investor, you must treat it like a business. And from what I've seen, this is where most people make their biggest mistake when first starting out, including myself. Like, I've consulted with a lot of real estate investors over the last several years, and this has been a recurring mistake I have seen nearly everybody make. And as harsh as it is to say, running a rental property like a business is so vitally important because guess what? It's a business. It's not a hobby. It's not a charity.

And sometimes I'm shocked how many landlords are willing to sacrifice their entire livelihood at the expense of a really bad tenant just because they're afraid of enforcing the rules. Now, I think a lot of people struggle with this because they invest in real estate with no prior experience managing people or running a business, so they have no idea what to do. And that's almost to be expected. Real estate often is, after all, pitched as this amazing side investment that anyone can do in their spare time and quit their nine-to-five to achieve financial freedom.

Part of that comes at the expense of managing your investment and providing a product and service to another person in exchange for a reasonable compensation. However, most people, including myself, will go through a phase of being too nice and too accommodating because they've never had to enforce any rules before.

For example, when I bought my first rental property, I was 21 years old, and it was renting the property to someone who was significantly older than me. And to be honest, I felt intimidated by telling someone else older than me what to do and what was and was not allowed in my property. Even though this is my home, I sunk everything I had into it, and they were the ones that were paying me. I wanted so badly not to cause any issues; I didn't want to make enemies, and I just wanted to be buddy-buddy and hoped that everything would just work out perfectly. But in life, that does not happen.

What ended up happening is that because I was too nice, I never ended up enforcing a late fee. So even though the rent was a week late, I thought it would be more likely to get paid on time in the future if I were that cool landlord who didn't have to cost a tenant more than I had to. Then when the tenant brought animals in the property that were not on the lease, I let it go because I was too afraid to tell the tenant otherwise.

I've also tended to make very unreasonable repair and upgrade requests that I've given into, again mostly out of fear that I didn't want to upset the tenants. But come on, this is not a way to run any business, and I'll tell you what happens if you don't take this seriously—it undermines your abilities as a landlord, and your kindness will be taken advantage of. The only way to get around this is to be fair but firm. You must learn to respect your ground, and as weird as it is to say, your tenants will end up respecting you more because of that.

There won't be any miscommunications; expectations will be managed, and the entire framework of the lease will not only give your tenants a great place to live, but you the compensation you need to stay in business. And your tenants will know exactly what to expect and what you must give them in exchange for renting the property. This is why real estate is just as much about people management as it is about crunching the numbers and analyzing a good deal.

And this is something that books and videos have a very hard time teaching because it's typically something that we learn as we go along in the business, and as we make mistakes like this.

Second, another mistake I see so many landlords make is by not properly screening your tenants. In a weird way, when a tenant signs a lease, it's almost as though they're signing into a contractual relationship with you for a few years or more. And you have to think to yourself, is this the type of person that I want to be contractually married to for the time that they're living in my home? Think about that for a second, because I am shocked how many people are willing to throw their entire life savings into a property and then just pick the first tenant who comes along because they seem like nice people in the first 10 minutes of meeting them.

Signing a lease with someone is very much a commitment, and you need to make sure this is the type of person you could work well with for a very long time. Ask me how I know. Seriously, just comment down below: Ask me how I know. Because I ended up making the same mistake on the first property I ever bought. I picked the first tenant who came by and offered me a deposit. I was so thrilled about the prospect of having my place rented and finally getting a check each and every month that I overlooked every red flag in the book. That ended up costing me an eviction, a year's worth of lost profit on the property, and a very expensive lesson that now, at the very least, I could talk about as content on YouTube.

Since then, I've become somewhat of a private investigator when it comes to screening tenants. I now put just as much time into the process of picking a tenant as they do when analyzing a property and whether or not I should actually go and buy it. I realized that one good tenant can make your real estate investing experience the best, greatest, most passive thing ever, and one bad tenant can make it a living nightmare.

To start, it's always important that you trust but verify everything the tenants are telling you. For me, I begin by having my tenants use the website mysmartmove.com, which gives me a complete background profile of their credit reports, score, as well as a residential and criminal background history. If they pass that, I will then go and verify their employment history. And unfortunately, this is where a lot of people tend to lie.

I can't tell you how many times I've seen tenants fake their employment history from companies they have been fired from or no longer work at. So instead, they go and list their friend as the manager for me to call and verify. What I do is always Google the name of the company they say they work for and then I call the number directly from what's listed online, never from what they give me. I also do the same with a residence history, and this is another one that's very easy to fake.

After all, it's sometimes very difficult to verify the owner is indeed the owner, especially when so many property owners use managers or hire their friends out to go and lease their place on their behalf. It gets a little bit messy. So my way of checking on this is to look up the property owner's name on public record and see if that name matches what the tenant says. If not, I will find out about that discrepancy, usually by tracking down the owner's actual information and then calling them directly.

Or sometimes, the prospective tenants will explain this ahead of time and say that they don't know who the owner is and it's done through a management company or a third party. They supply me with all the information that they have, and if that's the case, tracking down property management companies online is super easy and it's extremely simple to verify.

And if there's any advice that I could give you, besides screening a tenant very thoroughly and verifying all the information yourself, it is that it is always better to have the house unrented for an extra month or two than to pick a bad tenant up front. If you just internalize that one little bit of information, I promise you it's going to save you thousands, if not tens of thousands of dollars, in headache, damages, and just picking a bad tenant. Just trust me on this one; that is my best piece of advice.

The third, the next biggest lesson that I've learned is that as a landlord, you must always abide by smashing the like button for the YouTube algorithm. Had to throw that in there! Okay, it's out of the way! And you know, seriously, you must always abide by the contract. And of course, you guessed it; this is another one of my rookie mistakes that I made all too often when I first started investing in real estate.

And the mistake I see a lot of people end up making—and I know this sounds kind of common sense—is that the contract is a contract for a reason, and it must be followed down to a tee without any deviation whatsoever. This should really set the entire expectation for both parties, and everyone should know exactly what's expected of them throughout the entire tenancy.

To be honest, there really shouldn't be any miscommunications or misunderstandings or unusual interpretations when it comes to your real estate contract, as long as you use a thorough lease agreement from your state. And really, all you need to do from there as a landlord is just follow it. It really sounds so simple, but that 8 to 10-page contract plays your entire foundation of your job and duties as a property owner.

And you'll be an incredible investor if you just pay attention to what's written in that contract and then just stick with it. For example, if the lease agreement says there's no pets allowed on the property, then it's your responsibility to enforce that. If the rent is late and there's a late fee, then it's your responsibility to collect that. If not, you should make sure to follow any appropriate actions to make sure whatever violation is corrected.

This really applies just as much to you as the investor as it does to your tenant. Like, if there's a leak, it's your responsibility to go and fix it. If there's an issue somewhere, it's your responsibility to make sure it's fixed in a timely manner. So the contract really goes both ways, and if you take the initiative to have the leadership to follow the contract, chances are, so will the tenant.

It's also why it's important to keep a healthy boundary between you and your tenant and how keeping things professional will make it that much easier to make business-minded decisions if anything is to ever come up. That way, when a problem does arise—and trust me, it will—you can address it from the perspective of exactly what the contract says without any feelings or emotions getting involved.

Because if you don't keep that professional relationship, it becomes that much easier for the lines to be blurred and much more difficult to distinguish between the business and the friendship. Like, imagine if you become close friends with your tenant, but then you decide to raise the rent next year. Does that now make you a friend?

Or what happens if you raise the rent but then your tenant pays late, and you have to collect a $65 late fee? Now, are you the greedy friend? Or what happens if your friend violates the lease, and they refuse to move, and now you have to evict them? Do you really want to be that guy who ruins a friendship over money like that?

After all, you did nothing wrong and were only following the rules outlined in the lease agreements that both parties agreed on. But once friendships and emotions get thrown into the mix, it just becomes a convoluted mess. So make it clear from the very beginning: you stick with the contract, you keep a distance between you and your tenant, and you keep it professional without involving emotions.

And I will say it once more: Always stick with the contract and smash the like button!

Fourth, it's also equally as important to realize that as a landlord, you're gonna be on call 24/7. Now, that's not to say that you're gonna need to work your entire schedule around being available 24/7, because that's not the case. But you will need to be prepared to get calls and texts at the most random times of the day for the most random things, and sometimes it's gonna require you to stop whatever you're doing and attend to whatever issue comes up.

For example, I had an issue happen recently where the electricity went out in two of my units, and there was perishable food in a refrigerator that was at risk of being spoiled. So very early on a Saturday morning, I had to drop what I was doing, go, and call an electrician to go out and fix the issue. Overall, however, fixing issues like this tends to be pretty tame.

Now, it would be an entirely different story if I were my own handyman, and I would have to drop whatever I was doing to go to the property to fix a sprinkler valve. But for me, I'm always just available on my phone, and then whatever comes up, I will call the appropriate licensed tradesman to go out and fix it. What I do to reduce my involvement as much as possible is that I give my tenants the number directly to the handyman. That way, if anything comes up, they could call him instead of calling me.

I also just automatically authorize the handyman to fix any small issues whenever they come up, without having to call or ask my permission. For me, it's worth the peace of mind, and I know the tenants will not have to wait for anything to be fixed because they could just call him and he'll come right out.

Although, my experience is that overall, most issues that come up are usually not that urgent. Most of the time, you're just going to get a friendly text or email, and then you could choose to address it when you have the time, usually within 24 to 72 hours. And also, from my experience, the only major issue that will need to be addressed 24/7 as soon as it comes up that requires you to drop everything to go and attend to it is a leak. But even for me, that's pretty rare, and in the last eight years, I've only had that happen maybe just a few times.

Now, this is absolutely something to consider if you're thinking about investing in real estate because this will take time away from your day if and when something comes up that’s very urgent. And that also means your job as a property owner is to give your tenants a clean, livable, habitable property and address whatever issues come up as soon as you possibly can.

Speaking of things breaking, here's the landlord's rule of thumb: Here's the guide to pretty much everything in terms of this—if something can break, it will. Now, I'll admit I don't know how this happens because both of my parents were renters; I grew up in rental properties, and nothing ever broke. They took amazing care of everywhere that we've lived, so I just assumed that everyone would just take care of where they live.

You would think so, but it's not the case. As a landlord, you'll see the brutal reality that some tenants just don't care at all about where they live, and they will break whatever they can from improper usage just because it's not theirs. I know it doesn't make any sense to normal sane people like you and I, but I promise if you're in the business long enough, you'll encounter this type of tenant, and it's mind-boggling the amount of damage they could do.

What you would assume are some of these things are common sense—like don't leave spilled wine on marble countertops because it will stain, don't drag heavy pieces of furniture along the brand-new hardwood floors because it will scratch, don't put loose change down the garbage disposal because that will break it, don't play baseball in front of the glass sliding doors because if you miss the ball, it'll break the door, or don't just swing a door open as hard as you can so that the door handle goes into the drywall—you would think that this would just be common sense, but it's not.

So, that means as a warning for all the landlords out there: just like you would go and baby-proof a house for a newborn child, you will have to renter-proof a house for a renter. Make sure you could get the most durable floors possible that are stain and scratch resistant, countertops that will not stain or crack, and get a garbage disposal that could take whatever the tenant puts down it. Go and put door stops everywhere you can so that if they swing the door open, it doesn't damage the drywall behind it.

And unfortunately, you can't prevent a tenant from playing baseball in front of your glass windows, so try your best not to get a tenant who is very athletic. Oh, and also make sure the bathroom ceiling fan turns on automatically when they turn on the bathroom light; that way you won't get a buildup of moisture and mold in the bathroom if your tenants like to take really long hot steamy showers with all the doors and windows closed so that the entire place turns into a sauna.

And also, make sure you always buy really high-quality durable materials and not cheap, easily breakable materials, because if you don't do that, you're gonna waste a lot of money replacing things that should never have been replaced in the first place, because your tenants will not care for it as if it's their own, like you do.

Lastly, the sixth thing that every landlord needs to know is that at its core, real estate is a people business. No, yes, sometimes owning property can be as simple as just relaxing all day, making YouTube videos about becoming a landlord, and collecting that sweet, sweet rental income. But also owning property is just as much about effectively communicating with another person, learning how to say no, learning how to stand your ground, and articulating the details of a contract.

At the same time as all of that, you have to listen to the other person's concerns and address whatever issues come up. Sometimes they'll even need to double as a therapist, and being able to hear someone out and let them speak is often just as important as following the terms of the contract. If a person feels like you're listening and that they're heard, they're more likely to see eye-to-eye with you, and you could better understand their perspective so that whatever concerns they have gets taken care of, and it's a win-win.

This is really just an all-around good life skill that everyone should have, but hey, you know what also works for landlording too? You're also going to need to bend the rules at times and make your tenants happy. For example, I rarely ever raise rents because if I have a good tenant who pays on time, I want them to know that that's appreciated. And if they take care of the place like it's their own, that pay rent on time and they're respectful, I want them to stay there as long as they want.

I've also gone out of my way to replace and upgrade things that I'm not obligated to do, but if it makes the tenant happy and they stay longer, I am all for it. So understand that real estate investing is just as much about people as it is about finding the right property and analyzing the right cash flow.

And like I said, this is an all-around good life skill that everyone should have—not just real estate investors. And that, you guys, is my warning for all current and prospective landlords. Real estate investing can be absolutely amazing for the people who don't mind putting in the work and taking it seriously. After all, it's pretty much what I owe everything to, and it's what I want to throw all of my money into every single year.

But it isn't without some growing pains, and every landlord has to go through these at one point or another. But at the very least, if you could learn from my experiences and not make the same mistakes that I did, then at least my mistakes were not made in vain, and hopefully this video might end up saving you some money.

So that means you'll have more money left over to smash the like button for the YouTube algorithm!

So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the subscribe button and notification bell. Feel free to add me on Instagram. I post there pretty much daily, so if you want to be a part of it there, feel free to add me there.

As on my second channel, The Graham Stephan Show, I post there every single day I'm not posting here. So if you want to see a brand-new video from me every single day, make sure to add yourself to that.

And then lastly, if you guys want to free stocks—that's right, two free stocks—use a link down below in the description. Webull is going to be giving you two free stocks when you deposit $100 on their platform, with one of the stocks being valued up to $1400. So you may as well just use that link, get your two free stocks.

Webull, by the way, is basically just a free stock trading platform, similar to Robinhood, except it's a little bit more advanced. So you may as well just use it; I use it myself. Get your two free stocks, enjoy that—let me know what you get!

Thank you so much for watching, and until next time!