Real Estate ~ Hobby or Business

~No longer pursuing real estate as a hobby and have looked elsewhere for income opportunities.~  That is the comment I recently received from an ex-landlord unsubscribing from our property management emails.

It got me thinking about a point I raise in one of our teleseminars.  Successful people in real estate investing and management know they are in business.  It is not just "something they do." Before I received this email, I had never thought to use the word "hobby," though.  It makes you wonder if that is what the non-businesslike landlords think they have with their rental properties.

When I think of a hobby, I think of stamp collecting, model railroad building, restoring old cars, and golf, among others. It is something you do that costs money and what you do for the sheer pleasure of doing it.  Further, you don't expect to make a profit; you expect only to spend cash on it.

Two dictionaries agree with my opinion. I looked up "hobby" in the Oxford English Dictionary, where they define it in this sense as "a favorite occupation or topic, pursued merely for the interest or amusement it affords." Wikipedia says "Hobbies are practiced for interest and enjoyment, rather than financial reward."

I don't know if my former subscriber meant the word hobby in that sense, but I am certain that that is the way too many landlords treat their business:  they do it for the amusement it affords and with no apparent expectation of financial reward.

Our results usually live up or down to our expectations. Since the "hobbyists" expect no financial reward, they get none.  They spend money on their hobby, but get no financial rewards.  But oh, what a tax deduction!  But after a while, they decide to "look elsewhere for income opportunities."

When you own rental property, you are in business.

If you don't think you are in business, but just playing at a hobby, tell the Fair Housing enforcers when you violate the Fair Housing Act that you don't have to abide by the Fair Housing Act because your rental property ownership is just a hobby.  If you don't think you are in business, tell the city building inspector who red tags your building because of code violations that you don't have to abide by the law because it's just a hobby.  If you don't think you're in business, tell the city licensing department you don't need a rental property license because your rental property is just a hobby.

I would be interested to learn if any of those excuses work.  If they do, then we can forget all about that businesslike stuff.  All of us who are operating under the notion that we have an actual business with rental property can violate the Fair Housing Act, building codes and city licensing requirements with impunity.  All we have to say is "it's just a hobby."

Some people's rental property ownership seems to meet at least part of the criteria of a hobby: that is, it is practiced for something other than financial reward.  That can be because of several factors, but virtually all are under our control to a great degree.

We need to constantly think about how to accrue more profits from our rental property business.  It starts at the beginning with smart investing, continues with careful business planning including rent surveys and budgeting, is helped immensely with meticulous tenant selection, and ends with selling at the precisely most profitable time.

We have taken upon ourselves a vital business and we have assumed an enormous responsibility when we buy real estate and rent it out.  We are providing a home for almost 40 percent of the people in this country.  Let's treat our responsibility like the business it is and not a hobby.

By Robert L. Cain, Copyright 2006 Cain Publications, Inc., used by permission.  Robert Cain is a nationally-recognized speaker and writer on property management and real estate issues. For a free sample copy of the Rental Property Reporter or Northwest Landlord call 800-654-5456 or visit the web site www.rentalprop.com.

Joe and Colleen Lane are Southeast Washington State Realtors® specializing in Real Estate Tri Cities WA buyer/seller services for Kennewick Real Estate, Richland Real Estate, Pasco Real Estate, West Richland Real Estate, and surrounding areas.  Search the MLS for residential houses, multifamily homes, commercial buildings, vacant land, and condos.  Professional service providing real estate information for all areas of Benton/Franklin counties.  Check out our Free Real Estate Articles.  Call Joe or Colleen Lane toll free 1-800-526-3588.

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