Month: February 2020

Part 2

Tenant Selection

A bad tenant is what can cost a landlord the most money. Some 95 percent of tenants are good. They pay the rent on time, take care of their homes, and are good neighbors. But bad tenants have a knack for sniffing out landlords who are less than diligent or less than expert in tenant selection. It’s almost as if they have a built-in radar for tracking down landlords who don’t screen well. Tenant selection is a job that is easy to learn but hard to practice because bad tenants are often people who are expert at weaseling their ways in to rental properties owned by landlords who decide to rent to a tenant while they are listening to him and get snookered by a sob story.

Government Regulations

The bureaucrats in government seem to have it in for landlords. They pass laws specially aimed at rental property owners and apparently consider landlords fair game for any and all regulations and enforcement activities. It is all but impossible to know all the laws that affect rental property. They are hidden inside federal, state and local laws and regulations and come out to destroy landlords’ businesses when the landlords least expect them.
In addition, often the property taxes on rental properties are higher than those on owner-occupied properties and, in addition, may be subject to licensing fees and inspections from city workers, all at a cost to the landlord.

Especially dangerous is the Fair Housing Act. Without knowing it, the uneducated landlord can fall prey to a Fair Housing violation. Some of the seemingly most innocent misstatements or comments can result in a complaint that can cost upwards of $5,000 even if the landlord is found to be totally blameless. Imagine the cost if a landlord actually broke the Fair Housing law.

Vacancies

You are lucky if you get a long-term tenant, one who stays for several years. Normally, though, figure about one vacancy per unit per year. If you own a single-family property, that means that once a year you have to find a new tenant and have a 100 percent vacancy rate. Figure the cost of each vacancy is at least one month’s rent. Think about it. You will have to get the property ready to rent, the cost of which can vary from simple cleaning and polishing to painting and re-carpeting to fixing major damage.
That’s not to mention your marketing costs. Of course, ads on Craigslist are free and often are successful, but you still have to write them and answer the phone calls. Then, there’s the time involved driving over to the property to show it and waiting for someone who may or may not show up.
Prepare to be hatedHave you ever noticed how every time a rental owner is portrayed on a television program, he or she is the epitome of either disgust or evil? How that came about is something of a mystery, but rest assured that many people suck right in to that belief and resent the fact that landlords saved their money, invested it in real estate and actually want to turn a profit on that investment. Even some of your “friends” might turn against you. Or not.

Property Managers

The best way to avoid many of those hassles is to hire a property management company to take care of your property. That can be an excellent idea. It also can result in your losing your entire investment.
Not all property managers are diligent and look out for their clients’ interests. Too many are sloppy, lazy, incompetent, underfunded, mismanaged and generally a bad idea. You need to interview property managers just as you would any contractor.
In addition, figure that the property manager is going to take 10 percent right off the top, thus cutting into your expected profits.
Do you know all these pitfalls? Have you thought them through thoroughly and how they can affect your business? Have you decided that you can deal with each of them successfully? If so, you will want to read next week’s installment. In that, I’ll discuss why and how owning rental property can be a good idea and a great investment.

Part 3 Next Week

Part One

Somebody, maybe several people, who say that owning rental property is a great idea and will always provide you with excellent profits, advise that now is the time to become a landlord.  Maybe and maybe not.  It largely depends on you.  I’ll explain why.

This is the first of a two-part series about real estate investing and what it entails, its pitfalls and promises.

First, let me try to talk you out of buying rental property. Think long and hard before you buy your first piece of rental property. And after you think long and hard and decide to do it, think long and hard again. You have any doubts at all after all that, read the following.

The Pitfalls

It’s Work. 

I don’t care what the purveyors of the magic of landlording told you.  Owning and managing rental property is work.  It cannot be passive income unless you hire a property manager, but more about that later.

You will have invested considerable money and time in a acquiring and owning rental property.  You know how much money you have to put into it to make a property yours, or yours and the lender’s. Then, you have to get it ready to rent.  That can involve anything from simple cleaning and tidying up to painting and carpeting to a major remodel or new roof and heating system.  That done and the property is rented, it’s still work.

Things break.  And things traditionally break when you are not planning to have them break, usually the Friday night before a holiday weekend as you are getting ready to head out the door for a long weekend.  Maybe you can get a repairman to come out and fix it so you don’t have to.  Of course, it will be twice the price and you will have to meet him at the property.

Of course, you find out about the broken stuff with a phone call.  If you like phone calls, great.  That is one of the prime requirements for being a landlord.  But, be prepared to gradually develop a distaste for the telephone ringing even if talking on the phone is one of your favorite pastimes. Real estate is full of surprises; there are no good surprises in real estate, and every call from a tenant will be a surprise.

Buying Stupid

The idea is that the rents you receive will not only cover the mortgage payments and the taxes and insurance, but will also net you money every month.  If you buy stupid, that will not happen.  For whatever reason, many prospective rental property investors don’t or won’t use a calculator.  If the rent from the property will not at least break even, you will have to feed it every month.  That means you take money out of your bank account to make up the difference between the rental income and what you have to pay out.  I know, you get this huge tax break at the end of the year.  Many times it’s even enough to pay you back for the money you had to use to feed the property. And we haven’t even looked at vacancies.  See that discussion later.

By Robert L. Cain, Copyright 2020 Cain Publications, Inc.

It is easy to rent to a bad tenant.  That is partly because bad tenants make it easy and partly because of what landlords do and don’t do.

You know who they are: they don’t pay rent; they bother or even terrorize neighbors; and they keep their “home” so it looks like a pig sty (with apologies to pigs). 

Here we will look at three things landlords do and don’t do that allow bad tenants to slither into their properties.

Step One: Let your property look like a slum

Bad tenants are attracted to properties that fit their self image.  These are properties that could use considerable upkeep and repair. 

Landlords of slum-looking properties emanate the message that they don’t care.  They don’t care about their investment, and by parity of reasoning, don’t care who lives in their properties. 

It could just be that since the landlord has had so many bad tenants over the years, he or she hasn’t been able to maintain the property with little or no rent coming in.  It could also be a result of rent control, which has not allowed the landlord to raise the rent sufficiently to keep up with maintenance.

Regardless of the reason, a seedy-looking property attracts applicants who resemble it.

But there’s more. Bad tenants will move into a property that needs work, because they are “able and eager” to finish all that work that will get the property ready to rent.  Of course, they will never do any of that work and will decide after a few months that they shouldn’t have to pay any rent for a “dump like this.” They will tell the judge at eviction court that you never fixed all that stuff you “promised to fix” and even have the pictures to prove it.

Step Two: Decide to rent while you are listening to them

These folks are so pitiful that, and have such hard luck stories it is enough to make the most stony-hearted property manager’s heart bleed. They have a knack for going to work for the most unreasonable, rotten, cruel, mean, obnoxious bosses on earth, and for companies who are about to lay people off.

They also have a knack for getting into accidents and getting sick, which runs up big doctor bills that they have to pay so they can’t pay the rent. And those unreasonable, rotten, cruel, mean, obnoxious landlords they always rent from get mad when they don’t pay the rent and evict them. “You’re not like that, are you?”

Once you’ve been sucked into their universe of bad luck it rubs off on you. They don’t pay any rent to you, either. And by golly, do they have some great excuses. They’ll take this new set of stories to the next landlord, after you evict them.

The stories they have cooked up are sometimes true works of art.  They are so imaginative and practiced that they can have you actually believing that none of these terrible things that happened to them were their fault at all.

Step Three: Be Desperate

All reason goes out the window when all you can think about is where the mortgage payment is going to come from this month.  If you only had a tenant, the mortgage would be paid.  When the sob story, or the applicant who “has to find a place to live today” (and has money) shows up, you can see yourself writing the mortgage check. “Phew, that was close,” you say to yourself, “I almost had to take it out of my pocket.”

Yes, it’s easy to rent to a bad tenant if you follow those three easy steps.  Let your property go to seed, get sucked into their dark, down-spiraling world, and believe that any tenant is better than no tenant.

By Robert L. Cain, Copyright 2020 Cain Publications, Inc.

Putting people at ease is a basic step in getting people to react favorably toward you, says Dr. Arnold Lazarus, a psychologist at Rutgers University. He offers these suggestions:

1.Let people hear your voice. Don’t just nod. The sound of the voice is like a calling card or introduction.
2.Avoid talking too much or too little. If you tend to be too quiet, use more words. If you are a compulsive talker, try to summarize. Others often like to hold the floor themselves.
3.Use the word “I” in your conversations. You are much less of a mystery when you disclose something about yourself.
4.Look for something you can comment on positively. Pick something that you genuinely like about the other person and point it out to him or her.
5.Be able to laugh at yourself. If you tell a story in which you do not come out in a particularly good light, you will immediately see other people warm up to you.
6.Let your face express your feelings. If it is a mask, you are not going to put anybody else at ease.
7.Make eye contact often with the other person. By looking up at the ceiling or down at the floor while speaking, you make your listener feel ill at ease.