Landlording: the real time cost

In short

A friend of mine bought a rental house and told me the rent would pay for itself while he slept. He now sleeps a little less. If you are thinking about becoming a landlord, you have probably run the money numbers, and that is a good start. The hours matter just as much, because your time has a price too. Count every hour a rental asks of you, then multiply it by what your hour is worth. Compare that figure to what the property earns after costs. Decide whether to do the work yourself or pay a manager, and know the cost of each path before you sign anything.

The whole of it

What it is

I once watched a neighbor spend a Saturday under a kitchen sink that was not even his own kitchen. It was his tenant's, and the tenant had called at breakfast. That Saturday is the real time cost of landlording, and it rarely shows up in the glossy math. Rent comes in as a number on a screen. The hours that stand behind that number are scattered, odd, and easy to forget.

If you are weighing a rental, you are probably picturing the monthly check. That picture is fair, and I would never tell you it is wrong. But a rental is also a small business with one customer, and that customer lives in the building. Every hour you give it comes out of something else, like your family, your sleep, or your paying job.

The time cost is simply the hours the property takes, priced at what you could earn or enjoy elsewhere. Some owners hate this framing. They say the house is an asset, not a job. Fair enough. Yet the hours are real whether you name them or not.

How it works

A friend of mine keeps a little notebook in his truck. Every time he touches his rental, he writes down the minutes. After a year, he said, the notebook scared him a bit, and then it taught him a lot. The hours fall into a few buckets, and it helps to know them before you buy.

The first bucket is finding a tenant. You write the listing, take photos, answer messages, and show the place. You run a screening, which means checking credit, income, and past landlords. Federal law, through the Fair Housing Act, bars a landlord from turning people away because of race, color, religion, sex, disability, family status, or national origin. So the owner must treat every applicant by the same written standard. That takes care and time. A vacant month is lost rent, so many owners rush, and rushing is where trouble starts.

The second bucket is the steady work. Rent has to be collected. Records have to be kept. Taxes have to be tracked, since the IRS treats rent as income and lets an owner subtract certain costs, as described in IRS Publication 527, Residential Rental Property. Insurance needs renewing. Notices go out when leases end or rules change.

The third bucket is the surprises. A water heater quits on a holiday. A tenant moves out and leaves a mess. A city inspector sends a letter. These come without warning, and they do not care about your calendar.

Then there is turnover, which is the cost nobody likes. Between tenants, the owner cleans, patches, paints, and lists the unit again. One turnover can eat a full week of evenings.

The numbers, and where to find yours

You do not need a fancy tool here. You need three figures from your own life. The first is your hourly worth. Take your yearly pay and divide it by the hours you actually work. The second is the hours the rental takes, which a notebook or a phone note will tell you after a few months. The third is the rent the property earns after costs.

Several figures are set by law or by official sources, and they change. The depreciation period for a residential rental is set by the tax code, so check the current figure, which the official source publishes each year in the official IRS guidance. The rules for how much rental loss a person may deduct against other income depend on income level and involvement, so look at the current figure, which the official source publishes each year and the income range at which it phases out. If you hire a manager, the fee is a percent of rent that you negotiate, so ask each firm for its written rate rather than trusting a rule of thumb.

Your local numbers matter most. Ask your county about permit and registration rules. Ask your insurer about landlord coverage. Read the landlord and tenant law for your state, because notice periods and deposit rules differ from place to place. The Fair Housing Act and the IRS pages are the same everywhere, but nearly everything else is local.

A worked example

Let me tell you about a woman I will call Denise. She teaches school and earns $52,000 a year. She works about 2,080 hours a year, which is 40 hours a week for 52 weeks. Her hour is worth $52,000 divided by 2,080, which is $25 an hour.

Denise bought a duplex and rents one side. The rent is $1,400 a month. Over a year that is $1,400 times 12, or $16,800. Her costs, covering the share of the mortgage interest, taxes, insurance, and repairs, come to $11,300 a year. After costs, the property earns $16,800 minus $11,300, which is $5,500.

Now for her hours. She kept a notebook, bless her. Finding the tenant took 25 hours. Monthly chores, such as rent tracking, messages, and records, took 3 hours a month, or 36 hours. Repairs and phone calls took 30 hours. One turnover took 40 hours. That adds up to 25 plus 36 plus 30 plus 40, which is 131 hours.

At $25 an hour, those 131 hours are worth $3,275. Take that from the $5,500 the property earned. The result is $5,500 minus $3,275, which is $2,225. So her real return for the year, after paying herself for her time, is $2,225.

Is that a good deal? It depends on Denise. If she loves the work, the hours feel like a hobby and the $2,225 is a fine bonus. If she dreads each phone call, the picture changes. She might hire a manager. Suppose the firm charges 8 percent of rent. Eight percent of $16,800 is $1,344. Her return becomes $5,500 minus $1,344, or $4,156, and her time drops close to zero. That is higher than $2,225, though the manager's fee often skips costs like turnover work, which are billed on top.

Same house. Two paths. Worth knowing.

Where it goes wrong

I have seen good people stumble in the same few places, and none of it is a mark against them. The first is counting zero hours. People guess the property takes an hour a month, and the notebook says otherwise. Guessing low makes every deal look better than it is.

The second is forgetting the vacant stretch. If a unit sits empty for two months, the rent for those months is gone, but the owner's work did not stop. Showings, cleaning, and ads all continue. A rental with no tenant still takes time and pays nothing.

The third is treating a tenant like a number. A tenant is a person with a home to protect. When an owner answers calls late or ignores a small leak, small problems grow into large ones, and large ones cost both money and evenings. Kind and prompt service tends to save the owner time in the long run.

The fourth is skipping the paperwork. A lease the parties never read, a deposit handled loosely, or a notice sent the wrong way can turn into a legal mess. The landlord must follow the notice rules in the state's own law. A mistake there can add many hours, plus a lawyer's bill.

The fifth is overlooking the pull on your own life. A call at dinner is still a call at dinner. Some owners can shrug it off. Others cannot. Know which kind you are before you buy.

Last, many owners forget that hiring help has its own cost in hours. Even with a manager, someone must still check the reports, approve the big repairs, and watch the books. The hours shrink. They do not vanish.

Questions to answer before you leave this page

What is an hour of your time worth, and have you divided your yearly pay by the hours you truly work to find out? How many hours a month could you give a rental without taking them from your family or your rest? Would you enjoy fixing a sink on a Saturday, or would it sour your weekend? Have you read your state's landlord and tenant law, and do you know how much notice a tenant is owed? Do you know the written rate a property manager in your town would charge, and what that fee leaves out? What would you earn after costs, and what is left once you pay yourself for your hours? If a unit sat empty for two months, could you carry the cost and the work? And when the water heater quits on a holiday, who will pick up the phone?