Daily challenges are inevitable for residential investment property managers–from the inconvenient clogged plumbing, to destructive tenants.
Savvy, long-term investors know that the occasional challenges of being a landlord are far outweighed by the benefit of their investment.
Below is some advice on how to handle or avoid the most common pitfalls of being a landlord.
Constant Worry
Although it is natural to ask yourself, “Will my tenants pay their rent on time?”, “What if a tenant moves out?” or “What if the roof needs replacing?” you need to acknowledge that these worries are all part of being a landlord. Over the years, you will probably become accustomed to managing your worries, but the important thing is to prepare for the tough times, and relish in the good times.
Empty Rentals
Vacancies are inevitable, as are hard economic times, either personally or globally. Try to have reserve funds on hands during these trying times. I recommend having savings to cover 3 – 6 months of expenses.
If you are having problems financially and have vacancies, ask yourself “Can I hang on to the property at a reduced rent?” Sometimes finding a tenant quickly at a lower rent is better than waiting months for a tenant who will pay top dollar.
When you do have a vacancy, here are some ways to market your property to get it rented quickly and for top dollar.
Tell everyone you know about the vacancies. You never know who is looking for an apartment or know someone who is. I generally canvas the neighborhood where I have a vacancy with postcards listing the details of a vacancy. I bring them to coffee shops, hardware stores; anywhere employees have contact with people in the neighborhood on a daily basis.
Advertise at non-traditional places. Look at institutions and businesses in the neighborhood that may have employees who want to live near their jobs. Businesses usually have online classified ads targeted to their employees.
Advertise online. Most leads come from online ads such as Craigslist.org.
Diversify Your Portfolio
Owning multiple properties and multiple types of units (i.e. studios and two-bedrooms) will minimize financial woes when there are vacancies. Some units will turn a profit, some will break even, and others will rent at a loss. You want those turning a profit to offset those that drag down the portfolio.
Maintenance Issues
Plumbing issues are the most frequent emergencies landlords encounter, followed by water heaters and furnaces.
It is important not to skip inspections, routine maintenance and repairs because they can often avert emergencies. It is important to replace these systems before they wear out.
To keep your properties in top shape and keep costs down follow these steps:
Establish an inspection/maintenance schedule. Check furnaces and replace filters annually before the cold season. Paint the outside every five years. Keep track of what improvements need to be done on a regular basis to prolong their life, and avoid unnecessary repairs.
Install high-quality, durable building materials. Many landlords tend to think “the cheaper, the better.”
Bad Tenants
As a landlord, you will inevitably have tenants that are constant whiners, party animals, drug dealers, or chronically late with the rent. Over time you will develop a sixth sense about who will make a good tenant, but even that isn’t fool proof.
Listen carefully to what prospective tenants say before they even fill out their applications. Are they asking for repairs or changes already?
A good response to this question is, “the apartment is being rented as is.”
For weeding out possible deadbeat tenants, create a minimum set of qualifying guidelines such as, minimum income, minimum years of employment, and so forth.
Be sure you apply the same qualifying criteria to all applicants to avoid violating fair housing laws.
Also, don’t discredit a prospective tenant because they have poor credit. And a high credit score isn’t always a guarantee of a good tenant. Delve deeply into all prospective tenants’ histories. Perform thorough screenings of credit history, call previous landlords and employers, and even run criminal background checks. With the ubiquity of social networking sites on the Internet, I often run a search for prospective tenants on Facebook, MySpace, or even Google to see what I can discover. Photos and correspondence with friends are sometimes the most telling sources about a tenant’s true nature.
As for selecting and retaining good tenants follow the following steps:
Look for forthright, considerate people. Watch how tenants discipline their children, how they treat the property when they are viewing it, how they present their applications and references. All these actions offer subtle signs as to what kind of tenants they will be.
Build good tenant relations. Check in with your tenants regularly, before there is a problem. They will appreciate your concern and be more inclined to keep you informed of any problems.
Be flexible and tenants face personal problems. Everyone has tough times. By being flexible, and accepting half of the rent on the 1st and the second half on the 15th, or working out another payment plan, you can keep good tenants and avoid the costs associate with re-leasing a property.
However if spending a little more money on higher quality materials is going to expand the lifetime of the project, you are better off putting more money into it on the offset, than having to replace or repair it more frequently.
Use the same color pain in all rentals. This makes touch ups easy and you can buy paint in bulk for a discount.
Build relationships with repair people and service providers. These relationships are priceless when you have an emergency. Also don’t forget to refer business to them when you have the opportunity. They may thank you with a discounted price on your next job.
Hire a maintenance person or property management firm. Professionals who are knowledgeable about local laws may be able to save you money in the long run by avoiding costly legal situations.
This article was compiled with information from Realtor Magazine Online’s March 1, 2004 article “Investor’s Survival Guide by Elyse Umlauf-Garneau. You can view the complete article here.