Lauryn Williams, CFP, CSLP, on the Danger of Becoming an Accidental Landlord (Episode 82)

Lauryn Williams knows a thing or two when it comes to finance. She’s a Certified Financial Planner™, Certified Student Loan Professional and the owner of Worth Winning, a financial planning firm.

She’s also been a landlord and has experienced first-hand what it takes to pursue passive income from real estate.

Investing in real estate can be a good way to make money and grow your net worth. However, Williams shares her experience as a landlord so you know what you’re getting into if you decide to go down this path.

Is real estate passive income?

“There’s very, very little that’s passive about real estate,” said Williams, who warns that investing in real estate isn’t as easy as you might think.

“I made all the mistakes by not enlisting the help of someone else.”

If you haven’t done enough research or don’t have hands-on experience, consider hiring someone to help you manage your property.

Managing the house takes time, effort and money, and can be disruptive to your everyday life. For instance, when the air conditioning went out, she was making calls to get it repaired. Her rental home was in Florida, which means that roof repairs after a hurricane came through was also an issue.

Costs to include in your rental asking price

The price you set for rent should cover more than your monthly mortgage payments. You also must consider how much property taxes and insurance are for the property.

Sometimes, those amounts are calculated into your monthly mortgage payment, but not always. You could make a costly mistake if you don’t add the price of taxes and home insurance into the amount you charge for rent.

Ask yourself, “is your renter going to cover the mortgage, property taxes and insurance, and will there still be something left over,” said Williams.

If you think about how much cash you might have after paying the mortgage and other costs, is being a landlord worth it?

Let’s say you have $200 left. Earning an extra $2,400 per year sounds like a decent income. But if a major repair comes up, the washing machine breaks, or you want to renovate, you can end up losing money by being a landlord.

Deciding to sell your rental

You might think finding a new renter when one moves out is the biggest threat to earning income from real estate. Not having anyone to collect rent from can be a drain on your finances, but think about what might need updating if you decide to sell your rental.

When Williams wanted to list her rental house for sale, she ran into several issues that ate into her profits.

Even though she had excellent renters, “16 years passed and the house had no updates,” she said.

Not only did the house have the same old laminate floors from all those years ago, but the property also needed a new roof before she could list it for sale.

Advice from a CFP on how to grow income from alternative sources

At Worth Winning, Williams works primarily with people in their 20s and 30s. Many ask about alternative ways to grow their wealth because so-called experts suggest having multiple streams of income.

But you don’t need multiple streams of cash to grow your income. It comes down to the question of whether you want several streams of income that are an inch wide, or do you want the Mississippi River.

Basically, if you focus on one thing and try to be the best in the world, you can grow your income to a target net worth and be financially independent.

“If you’re willing to invest the time, you can be profitable,” said Williams.

Should student loan borrowers invest in real estate?

If you love real estate and want to grow that as an investment, your student loans, no matter how much you owe, shouldn’t hold you back.

“It all leads back to having a solid financial foundation and being able to set aside money to save,” said Williams.

Borrowers often ask us for help because they want to buy a house or build their investments, but feel trapped by their student loans. It doesn’t have to be that way. During a student loan consult, we show you how to build a financial foundation and create a plan to pay off your student loans to allow room for savings.

Get a Student Loan Plan