In today’s real estate market the key to thriving lies in “good tenants.” Many people fear becoming property managers and for good reasons, but if you really want to succeed in real estate you need to think long term. That’s right… history has proven that real estate doubles every 10 to 14 years. The problem is that many novice investors purchased hoping to flip for a small fortune and greed led them to invest in properties that were extremely negative in cash flow production. However, if you invested wisely the most pressing problem you will have to deal with is selecting the most qualified and ultimately profitable tenants.
Because I want to empower you to succeed I am going to share with you my top 5.5 tenant problems and how our team of experts maximizes on those opportunities. There are several simple strategies that you can apply to your real estate investments to do the same. If you follow these fundamentals not only will you make money, you will avoid a ton of headaches. So let’s go over these opportunities right now.
1. Non Payment / Late Payments/ Bounced Checks:
If you “the investor” are the one paying your own rent on an already occupied property, there are severe problems with your cash flow. The same goes if your tenant is constantly paying you late or even bouncing checks. While there are a multitude of reasons for tenants not keeping their end of the bargain, the root of the problem lies in a bad screening process of tenants up front. This includes weak lease agreements. If you want to avoid these major problems you will need to…
– Verify prospect’s credit history
– Make sure to contact references
– Have a strict legal lease agreement
– Keep good communication with your tenants
– Offer rewards for paying on time (Discount a month’s rent after consistent payments)
– Don’t be afraid to go after your money legally
I’m not saying that doing things right up front is easy (or cheap) but ultimately finding the right person(s) as tenants will benefit you in the long run more than almost anything else in the buy and hold real estate game except for buying at a discount. Keep in mind that if you are not willing to collect your money, you won’t be in this business very long.
2. Illegal Activities:
Whether you own a residential property or multi-unit buildings, illegal activities can destroy your property values. Many times tenants conduct illegal activities in the properties they rent from you the landlord- leaving you the owner liable for many potential problems. This was an issue I had to deal with when we as a network purchased over 25 town houses last year. It was horrible to learn that some of the tenants were dealing or using drugs. We knew that if we did not act quickly it would affect the over all value of our investment. Because we have zero tolerance for crime we notified the local authorities with these problems and let them do their job. We also encouraged our nearby good tenants to do the same. In less than 6 months the neighborhood had a much better atmosphere- one that made people feel safe.
Can you see why you too should deal with these issues at the root?
3. Bad Maintenance:
The poor upkeep of your properties can cost you BIG in the long run. Tenants are not by nature irresponsible. However, human beings as a rule more often value that which they own. So challenge your tenants to be responsible, by not only keeping the property in good condition but also by reporting issues as they arise. Make sure your lease agreement covers this section in detail. Walk through the unit with your tenants before handing over the keys. Also, I would highly recommend you drop off a new air filter at least quarterly. Most tenants never change their filter, which can cause your central heat and air systems to break over time. By dropping off a new one it will give you an opportunity to inspect the condition of your investment without prying- but be sensitive to privacy and non-intrusive. In fact, your tenants will likely thank you for the extra service and you will be rewarded by avoiding many costly issues that are caught on time.
4. Unauthorized Residents:
Any resident that has not been screened or signed off on your strict agreement can pose a high risk to your investment because they are not bound by the standards in your contract. People tend to act differently when no one knows who they are or can hold them accountable. This normally occurs when an authorized tenant brings in a roommate without contacting you. The best way to avoid this potential liability is to charge an additional fee for roommates, keep track of vehicles and unidentified people in your properties, and be up front with your existing tenants what your policies are to bring new people into the unit.
5. Noise Violation:
Loud music and screaming tenants can annoy your other paying customers in a multi-unit building. In a neighborhood where your unit or house is one among many it can rouse bad sentiment among other resident homeowners or landlords who own rental properties. No one likes when loud annoyances shatter the night, or prompt neighbors to bring in the police. The best way to deal with this situation is to call them on it and if they do not respond to your call, get the authorities involved. There are many regulations that the government has put in place to stop noise violations. Again, your lease agreement should cover this area. Be respectful, but be firm. After all, you have money tied up in an investment that loses perceived value when those types of goings-on are prevalent.
5.5 Bad Management:
Many investors suffer because they do not have an efficient property manager. If you are the problem, don’t let your pride keep you from thriving in real estate. Just interview professional property management companies in your area and make sure they cover all and more of these topics. The number one thing I would recommend you do when you sit with a manager is have them give you a copy of the agreement they use and have your attorney read through it. For example, when we invest in bulk properties- whether they be residential or commercial- we like to already have a solid manager signed up to complete the task that is ahead. Should you do the same?
If you just apply these few principles I can assure you that you will save thousands of dollars in mistakes and you will be re-positioned to increase your monthly returns. So keep building your long-term wealth and stay connected for more resources.