Get It Rented Blog

By Robert L. Cain

It’s a business, owning rental property.  Even if you don’t think it is, it is. Watching every piece, every penny determines how profitable the investment will be. Think about it. Investors own an operation that may involve millions of dollars in assets but believe it’s just “something to do” or passive income. Then those investments begin to eat their bank accounts and sanity alive. 

People get rich investing in rental real estate.  They take charge of their investments by carefully tracking their financial health and realizing good business means careful attention to what happens on and to their rental properties. There’s no such thing as passive income in rental property ownership. That’s even with a management company. Property managers require even more attention than any contractor does. No one will take the care owners will.

Here are six things profitable rental owners do without fail.

1. They carefully screen all prospective tenants

Top tenants help turn a profit for investors and successful investors rent to them, making sure they meet the qualities of “good” tenants. Bad tenants are the most common cause of rental investment financial disaster.  As rental owners, we get to pick our customers. With most businesses, it’s come one, come all—please. With rental property, it’s come one and only one, and you’d better be worthy.  With rental properties, bad tenants’ slithering expertise comes gets called into play.

Professional bad tenants are professional liars, practiced at sounding as if they are just about the best, nicest, and most responsible person in the history of the world, or the person you should feel most sorry for.

Fortunately. bad tenants give themselves away.  They don’t pay their bills, have been evicted, lie on rental applications, and job hop.  It’s easy to discover all that with careful screening before accepting rent and handing over the keys.

The two times rental owners most often get in trouble are when they are in a hurry and when they feel sorry for someone.

Rental owners are not in business of saving the world.  Their business is to provide decent, quality housing. Turning a $100,000, $200,000, or $300,000 piece of property over to a bad tenant will cost sleep, money and sanity, eventually driving an investor out of the business. Then they tell anyone who will listen that owning rental property “just doesn’t work” followed up by a horror story or two, horrors of their own making because of renting on gut feeling or feeling the applicant “deserved a chance.” But it does work as the millions of successful rental owners can attest.

2. They inspect their properties.

Things break and wear out in rental properties. Tenants ignore them.  They have no financial interest in the property, so continued upkeep just doesn’t seem important.  In spite of the fact that they tell you about things that need fixing, major problems don’t enter their consciousness.  Sometimes those things can end up causing major damage to a bank account.

For example, a tenant probably won’t notice a roof that is missing shingles or is about worn out.  After all, it isn’t leaking.  But they might call you about a dripping faucet, something that would take years before it cost you any money.  A tenant probably wouldn’t say anything about a rotting porch board, as long as it isn’t right where someone has to step entering or leaving.  The rotting porch board could be a sign of dry rot underneath, potentially adding up to massive repair costs, not to mention liability.

Inspecting the property every three months with a room-by-room checklist nips problems and expensive fixes in the bud also letting the tenant know that you care about your investment and their comfort.

3. They raise the rent every year.

One rule of thumb says two percent.  The every-year part affects future rent increases.  Costs rise every year, but owners don’t raise the rent because they have good tenants and don’t want to lose them.  Say a property rented for $1000 a month, a two-percent increase would amount to only $20 a month or $240 for the year.  Tenant will grumble, but probably won’t move.  After all, you can’t afford to move for $20 a month.

What if owners don’t raise the rent?  Costs go up and five years later maintenance falls way behind because the owners try to watch their money because rents don’t cover tip-top maintenance.  Now, in order to catch up, they would have to raise the rent to $2200 from $1000 even without compounding.  Do the math: $20 time 60 months is $1200. Add that to the rent of $1,000. Rent shock is reason to move.   And tenants will tell everyone they know about that “money-grubbing” landlord.

Keep good tenants, profits, and maintenance by raising the rent a little every year, not as a last resort.

4. They use checklists.

I don’t know about you, but I can’t remember everything.  The most efficient way to make sure you do remember is checklists.  Make checklists for tenant selection, move-in procedures, maintaining the property, checking the property, move-out procedures, and anything else you do regularly. 

5. They use a written lease or rental agreement.

Do tenants know exactly what is expected and required of them? With a thorough carefully drawn lease there can be no question or misunderstanding.

Local apartment and rental-owner associations provide up-to-date leases and rental agreements prepared by real estate attorneys to reflect all the latest changes in the law. What you leave out of a rental agreement or what you include that shouldn’t be there could cost you a bundle in lost evictions and unpaid rent.

In addition, when a change in the law occurs, first chance update the lease or rental agreement accordingly.  Nothing is so frustrating and potentially costly as a misunderstanding.  If everything is clearly spelled out in the rental agreement, there should be no question.

6. They update.

Maintenance is one thing.  Keeping a property looking brand new and fresh is essential to attracting the best applicants. An updated apartment can mean an extra $200 to $300 a month in rent.

Successful investors package their properties to attract top applicants. Those prime applicants will pay a premium for well-maintained homes—homes they will be proud to live in.  New vinyl, carpets, countertops, bathroom fixtures, cabinet doors, modern paint colors, and tidy landscaping all add to the amount of rent you can demand.

Successful real estate investors use these six techniques religiously to guarantee their success in our business.  The choice of how we run our businesses is ours. And it is a business.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain

All of a sudden some people seem to have better credit. That came about because they weren’t paying their bills and so may not really have earned it.  A Market Watch report from February 17, 2021, said that “While millions of Americans were laid off or furloughed from their jobs, lost their employer-based health insurance and skipped debt payments, their credit scores rose to record levels.”  They got “accommodation” from creditors.

According to Experian, the average FICO score was 703 in January of 2020, but by October, it had gone up to 711. That’s all the result of a provision in the CARES Act that games the credit reporting system. You remember the CARES Act with the $1200 per person stimulus money and other provisions that, it turns out, resulted in credit scores rising. What happens is that when laid off people can’t pay their car loans, utility bills, credit cards, or whatever, they can ask the lender for forbearance. 

Because of the forbearance (also called accommodation), lenders must report the debtors as current or “paid as agreed,” even though they may not pay a dime for six months or a year. How does that work?

It has to do with the way FICO and Vantage scores are calculated. Payment history accounts for  35 percent of a FICO score.

Thus if payment history shows all debts current or paid as agreed for several months, up goes the FICO score. MyFICO.com lists the criteria they use to calculate payment history. 

• Payment information on credit cards, retail accounts, installment loans, mortgages and other types of accounts
• How overdue delinquent payments are today or may have become in the past
• The amount of money still owed on delinquent accounts or collection items
• The number of past due items on a credit report
• Adverse public records (e.g., bankruptcies)
• The amount of time that’s passed since delinquencies, adverse public records or collection items were introduced
• The number of accounts that are being paid as agreed

The Consumer Finance Protection Board (CFPB) explains the three possible results when a borrower receives accommodation from lenders.  One, if the account is current and the borrower makes the agreed upon partial payments, skips a payment or whatever else is agreed, the lender reports the borrower as current.

Two, if the account is already delinquent when the borrower makes the agreement, then the creditor cannot report the borrower as more delinquent. So, for example, if the borrower is 60 days late at the time of forbearance, that’s what the lender must report as long as the forbearance lasts.

Three, if the account is already delinquent and the borrower brings the account current, the lender must report the debt as current. That seems to fly in the face of the second point of the FICO score calculation, “How overdue delinquent payments are today or may have become in the past.” Will the past due record not show or does the payment history reflect a paid-up delinquent debt?

How does that help or hinder landlords and business owners looking to rent or hire?  Pay no attention to the FICO or Vantage score and instead look at individual debts and “special comments” by the lender and “permanent comments” by the debtor. That gives an idea of what to expect after the pandemic is over.  The CFPB says that the special comments will say that “the account was affected by a national emergency as a result of the pandemic.”  That note is temporary and stays on the credit report only until 120 days after the national emergency is over and then disappears entirely, never to be seen again. A borrower, absent a comment by the lender, may make a “permanent comment” stating that he or she has “been negatively affected by the pandemic.” That remains on the credit report forever.  The CFPB points out that “a prospective landlord, employer, or lender may take [that] into account.” Ya think?

Forbearance may seem like a good deal for borrowers, but not when we look at the ultimate result once the “national emergency” is over.  It lasts only 120 days after the national emergency ends.  The terms the creditor and debtor agreed to in the forbearance determines how the parties set up accommodation.  If the borrower made the deal that the forborne balance is added to the end of the loan, it extends the original payoff date. So, if a borrower had a car loan of $600 a month and the lender added the missed payments onto the end of the loan, it would change little as far as concerns a landlord or business owner, just giving the borrower longer to pay it off.

On the other hand, if the agreement says the forborne payments total is due and payable 120 days after the pandemic is officially over, that is a concern.  Depending on how many accounts were “accommodated,” that could amount to thousands of dollars  So that $600 a month car payment, if the forbearance ended after six months, would be a $3600 debt due and payable immediately, which could result in no rent paid or the vehicle being repossessed, the borrower unable to get to work, and a wage garnishment.

Why would someone agree to a forbearance on those terms?  It could be they don’t understand what will happen, they know what will happen but never do the math, or they are so relieved to get the debt “accommodated” that they will agree to something that onerous and worry about the consequences later.

Thus, when a landlord or business owner looks at a credit report, the telling information will be in the body of the report not the FICO or Vantage score.  Look for a “special comment” by the lender or a “permanent comment” by the applicant.  Then ask what the terms are.  Is the past due balance due and payable in full 120 days after the pandemic is declared over or is it added to the end of the loan?  It’s possible that your applicant may not even know.  If that’s the case, it may make a landlord or business owner think twice about renting to or hiring the applicant.

Eventually, the pandemic will go away and those people with mysteriously risen FICO scores will see their scores fall rapidly, possibly even below where they were in January 2020, and their ability to pay evaporate.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain

Today, renters owe $70 billion in unpaid rent reports Moody’s Analytics. We have to assume that landlords will never see any of that unpaid rent. The real story is who owes the money. The vast majority of the $70 billion owed comes from Class B and C properties, while the Class A properties do just fine.

Class A properties, make up the highest quality buildings in any market. Built within the last 10 years or so, they are well-marketed, and built with high-quality construction. They command the highest rents and are rented to top tenants who earn the highest income.  Of those tenants who earn $100,000-plus, only 5 percent are behind in their rent.  That makes sense. What’s more, 93.8 percent of all tenants in Class A apartments had paid their rent in December.

Who is left? Most other rental properties, and they are in trouble along with many of the renters who occupy the Class B and C properties. The overwhelming majority of the unpaid rent is owed for these properties, by these tenants, and to these landlords.  In September 2020, more than one-third, 35.2 percent, of landlords who own class B and C properties didn’t receive all the rent owed them. In October, that number grew to 38.1 percent reported the National Multi Housing Council in its Rent Payment Tracker Survey. That means only 61.9 percent of landlords were likely to receive all the rent in October, a far cry from the 93.8 percent of Class A properties.

The average renter who hasn’t paid rent owes about four months’ worth, or $4625, reports the National Apartment Association. And, of course, with the eviction moratorium, their landlords can’t kick them out, for that anyway.

Class C properties are buildings that are looking at least a little shabby, have a dated exterior and interiors with limited amenities, and may be at least 30 years old.  These are the properties often rented by people who may have less than a high school education and work in industries most affected by government shutdowns.  The Washington Post in a January 27 article reported that less than half, 48 percent, of this demographic had jobs, and continued, “In three of the biggest sectors for lower-education workers, over a million jobs are missing compared to Dec. 2019.”

One-to-four unit properties make up virtually all rental properties, some 97 percent, regardless of class, reports the Census Bureau. About three-quarters, 73 percent, are owned by individual investors.  Add those owned by LPs, LLPs, or LLCs and almost nine of 10, 88 percent are accounted for.  And those owners manage them themselves in about the same percentage as are owned by individual investors, 73 percent.  Agents or management companies manage another 22 percent, to total 95 percent of all one-to-four unit properties.

Bob Pinnegar, CEO of the National Apartment Association reporting on a survey the NAA did said, “nearly one-in-five of two-to-four unit properties said they could not sustain operations for more than a year at current delinquency rates.”

Just as in all multifamily properties, rents pay for the mortgage, taxes, and insurance to keep the properties operating.  When half a duplex isn’t paying rent, that hurts a lot more than if one unit in a 20-unit property isn’t paying rent, and even less in a 100-unit property.  These owners are living on a prayer with their reserves exhausting rapidly while they try to keep their properties functioning.  Add to that the fact that about one-third of smaller landlords are 65 and older, mostly retired, and may not have another source of income besides the rent. Pinnegar of the NAA worries that “There is a risk of losing these units from the rental housing stock entirely.”  Rental owners will let leases expire, evict for reasons that have nothing to do with unpaid rent such as lying on a rental application and violating the terms of the rental agreement, and remove their rental from the market in utter hopelessness and/or sell to owner-occupants.

Efforts at correcting this problem may be coming too little, too late. Urban.org reports that landlords have become more cautious with their screening with 35.6 percent having tightened their rental criteria.  A lot of good that does with so many units occupied by tenants who can’t pay rent and can’t be evicted.  The “new and improved” criteria include a higher credit score and higher income.  But the horse has escaped the barn and just now they are closing the door.

One solution, which is easy for individual landlords, costs little or nothing, and sends unqualified applicants away, is a professional image.  That’s one reason Class A properties attract top tenants. It starts with retrofitting a Class C property to look as much like a Class A as possible. Look at what Class A properties do to keep them in tip-top shape.  It’s property packaging: curb appeal; professional-looking For Rent signs rather than a hand-scrawled piece of cardboard or sign bought from Office Depot with the phone number messily written with a felt-tipped pen; a professional-looking website and/or Facebook page with photos; appealing-looking marketing materials such as property flyers; and carefully crafted and written rental policies and standards.  Those tell less-than-qualified applicants that they would be dealing with a businesslike landlord, and says “run to the next one who may not be as careful.”

There’s not much we can do about the $70 billion in unpaid rent that’s growing every month and most likely will never be paid. But we can discourage unqualified applicants with a professional image and careful screening.

For complete information on how to market a rental property inexpensively but effectively, read the book Get It Rented by Robert L Cain. Available on Amazon

Written for Zip Reports where they do employment and rental screening.
Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain, Copyright 2020

Just one more step.  But overlooked trip hazards endanger that step. Trip hazards are things you would avoid if you saw them, but you don’t because you aren’t paying close enough attention. Trip on one, fall on your face, and who appeared to be the “best” applicant could prove to be the worst.  Everything checks out, the applicant meets all your criteria; you pull a credit report. But when you read the credit report, what trip hazards are you missing? Sure you want to find out if he or she pays bills on time, has judgments, is in collection, and those are important and can indicate how responsible that person is.  But some items on a credit report often get overlooked. And those can tell as much as or more than the payment history and judgment history and might be oft-overlooked tip hazards.

Let’s look at them.

The top entry on a credit report is the name or names of the consumer. If you see multiple names, check carefully.  Of course, they could be a married name and a maiden name, so that’s no problem.  But what if you see completely different names?  That requires investigation.  It could mean identity theft, but whose, your applicant’s thievery or the actual person whom the credit report belongs to?

Reported addresses come second. Two things to check here. Do they match up with those on the application? Do addresses appear on the credit report that the applicant didn’t list?  Does one address overlap in time with another address?  If that’s the case, it could again be identity theft, but whose?  If there’s no issue with identity theft, did the applicant report all the addresses on his or her application or is one left out?  The one left out will be of particular interest and will require an acceptable explanation from your applicant.  Was it a simple error or was he or she trying to hide something?  Regardless, investigate further.

Carefully examine employment records.  Those consist of the names of current and previous employers and the dates of employment.  Do all of those match what’s on the application? Especially missing dates because if a time period is unaccounted for, that requires considerable explaining.  What was your applicant doing during that unaccounted for time period?  We can speculate, but only further investigation answers the question.

Public records tell a story as well.  Those include data from court records and run up red flags.  Look for bankruptcies.  They stay on a credit report from seven to 10 years from the filing date, depending on the type of bankruptcy.  A Chapter 7 bankruptcy stays for 10 years while a Chapter 13 disappears after seven years. A Chapter 13 bankruptcy is a payment plan, and a Chapter 7 wipes out all debts (except student loans, of course).  Your applicant could still be paying on a Chapter 13 bankruptcy after seven years and that could affect his or her ability to stay current with other debts.

A bankruptcy might not automatically disqualify your applicant if it was a prompted by medical bills.  One study in 2009 conducted by David Himmelstein found that 62.1 percent of bankruptcies were the result of medical bills. Having gotten out from under the medical bills, he or she can have restored credit worthiness.

We don’t see other court records on credit reports anymore since the credit reporting agencies removed them in 2017. So if you’re so inclined, you’ll have to obtain those directly from the county court records. But the rest of the information on the credit report will likely tell you enough.

You probably looked at collections first.  Those can be telling about how well a person pays his or her bills but check the dates.  If some of the collections come from medical bills, that is an important consideration just as the “medical” bankruptcy is.  Unpaid collections may just sit there waiting for the collection agency to take action.  Then all of a sudden your new tenant gets wages garnished and will be short on money for rent and car payments. Some collections will have been discharged so the person no longer owes them and they won’t affect the ability to pay other bills.

Now figure out the Credit Utilization Ratio (CUR)—reported use of revolving accounts, credit cards, usually. That tells how much of a person’s available credit is in use.  For example, suppose someone has a Visa card with a $2500 limit and currently owes $1200 on it. That’s a CUR of 48 percent.  Do that with all revolving accounts to see how much your applicant has to dish out every month for credit cards.  Now add in the installment accounts, such things as student loans and car payments, bills where they borrow a specific amount and make monthly payments.  Lenders recommend keeping CUR under 25 percent, and rental owners want there to be money left over from all debts to pay the rent.

Finally, look at credit inquiries.  There are two types, hard (regular) and soft (account review).  The “hard” inquiries are for companies the applicant wants to get credit from.  Those can turn into bills.  It’s worth asking your applicant about them. “Are you planning to buy a new car?” “Did you apply for a new credit card?” “Where else have you applied to rent? Did they turn you down? Why?”

Each of these trip hazards can negatively affect your business if you fail to pay attention to and account for them.  There may be adequate or even acceptable reasons for each of these items, but there also may not be. Just pay attention and keep from tripping.

Written for Zip Reports where they do employment and rental screening. Contact Robert L. Cain at bob@cainpublications.com

Copyright 2017, Cain Publications, Inc.

A Third Secret

A third secret is that the most powerful marketing has nothing to do with advertising.  It’s what others say about you.

I used to work with Al (name changed to protect the less-than-objective). He’s a “Ford Man.”  He considers any other brand of vehicle not worth his attention except to ridicule it, something he is eager to do, and accuse those who drive them as somewhat less than intelligent and possibly a danger to society, though his words are far more colorful. I used to kid him about what FORD stood for, “fix or repair daily” or “found on road dead.”  But his father was a “Ford Man,” too.  Al didn’t have a chance. He had Ford pumped into his brain from the time he was old enough to listen. So in spite of the fact that his car was in the shop once a month (I do not exaggerate), he still had a new Ford every three years when their leases were up. His father was the marketing that affected him.  That’s word of mouth to the extreme.

I drive a Toyota pickup.  Why?  Because of marketing.  What was the marketing?  Toyotas are reliable.  Just check the JD Power ratings.  I bought my current truck new 150,000 miles ago.  The only things I’ve had to do with it are buy a new set of tires, new brakes a couple of times, and a new battery a couple of times, plus change the oil.  The marketing that sold me was that I could depend on it.  It’s also good for bringing home stuff that would in no way fit in the trunk of a car.

My wife drives a Hyundai. We bought that new, too.  What was the marketing that sold us that?  Once again, reliability. They warranty them for 10 years or 100,000 miles. Several years ago we got a flyer in the mail from a local car dealer listing the most reliable vehicles as judged by JD Power and Associates.  Right at the top of the list was Hyundai. We weren’t in the market for a new car then, but we put that list on our refrigerator and left it there several years.  So every time we thought about a new car, what came to mind?  My wife also asked people at her work who drove Hyundais how they liked them.  The testimonials were 100 percent positive.  What was the benefit to buying those vehicles?  We weren’t inconvenienced by having to take them to the repair shops and we could depend on them to start when we turned the key, go when we pressed the gas pedal, stop when we hit the brakes, and get us where we wanted to go.

How about brushing your teeth?  Why did you buy that particular brand of toothpaste?  I think we use Colgate at our house.  I can’t be sure without going into the bathroom and looking, but I think the tube is red and white, Colgate’s colors.  We always buy that toothpaste. I believe my wife originally bought it because of the cap.  It flips up so requires no unscrewing and eliminates forgetting to put the cap back on.  Somewhere in the past undoubtedly Colgate had an ad or marketing that promoted their patented cap.  I do remember the colors and design of Colgate, though.  That has to do with branding.  We will discuss how you can brand yourself and your rental properties in the next chapter.

The toothpaste commercials never enter my consciousness. My point here is that we can’t know the factor, feature or benefit that will prompt someone to buy.  Fathers, reliability, no commercials,  or caps, we can’t predict what the selling point will be that tips the scales in favor of a product or service.  But it will be something, and maybe something we least expect.

The following is from the book Get It Rented, available on Amazon.Copyright 2017 Cain Publications, Inc.

The Census Bureau published The Property Owners and Managers Survey in 1996, the latest reliable and comprehensive figures I can find, in which it analyzed rental owners. The study found that “Overall, 58 percent of multifamily properties made a profit or broke even. About 27 percent had a loss, and for 16 percent the owners did not know whether they made or lost money. About 58 percent of small and medium size properties had a profit or broke even, compared to 51 percent of large properties.” Think of that; just over half of multifamily properties did not lose money. Notice the figures are for making a profit or breaking even. We can deduce from that that fewer than half of the rental owners made an actual profit. But a telling figure is that 16 percent of owners had no clue if they made any money or not (and they’re in business?).

What are they doing wrong? Why aren’t all those rental owners ahead of the game? One of the reasons is sloppy, indifferent or NO marketing. After all, tenants are going to rent from someone, so why aren’t they renting from those landlords? It has to do with marketing. Much of marketing begins in the owner’s brain. So many rental owners think they only have to think about marketing when they have or are about to have a vacancy. Then it’s too late. They end up like every other landlord who can’t figure out what to do to get that property rented. They don’t know why the phone never rings and why nobody wants to see their property. Or just as bad, they can’t figure out why everyone who calls shouldn’t be able to even rent a Barbie Playhouse.

Here’s how to adjust your thinking. If the other rental owners aren’t paying attention, all the better for you. You will get the edge that could mean that your properties make a profit every year, your bank account bulges, and you will be able to retire in comfort. It begins with marketing.

Marketing is everywhere and we can learn things that work for our rental properties by watching not just how the pros do it but also what other techniques can be even more effective. Everyone buys (or rents) for his or her own reasons, not ours. So in order to be effective, we need to appeal to as many of those reasons as we can to hit the bull’s-eye of why a particular person buys.

Part Three

The Advantages of Being a Landlord

It’s a Hands-on Investment

If you send your money off to invest in the stock market or bonds in one form or another, directly buying stocks or through mutual funds, that money is out of your control.  Companies can and do make stupid decisions that trash their stocks and run them into bankruptcy.  Do that and too bad for the investors.  As we have seen in the last few years, the entire market has nose-dived, leaving all kinds of investors wondering where their money went.

Because it is a hands-on investment, with rental property, we can largely avoid the downs through buying smart and ensuring that our rents keep up with the market.

Buying Smart

Along with hands-on investment goes the idea of keeping up with the real estate market.  That means we pay attention to the rents and do regular rent surveys.  But in addition, we also pay attention to where the good real estate investment deals are.

By doing the math, we can spot properties that will make us money from day one.  The rents will cover our buying costs and operating expenses and leave some left over for our profits.

But we have to think about it. We have to take real interest in the real estate in our communities so we can spot an terrific investment immediately and be ready to act to snatch it up before another cagey landlord does.

The Tax Advantages Are Great

Since rental property ownership is a business, we get to deduct all kinds of things we don’t get to for our own homes.  We get to depreciate the improvements. We get to deduct everything we spend on the property as expenses, taxes, insurance, repairs, mileage, management fees, and just about anything else you can think of.

When I first invested in rental property some 30 years ago, I went from having to borrow money to pay my income taxes to getting a refund.

You Get to Choose Your Customers

If you owned a retail store, you are mostly stuck with whomever walks through the door.  With rental property, you can slam the door in the face of bad customers by using careful screening techniques. Bad tenants leave a trail that is relatively easy to follow. 

As I pointed out in a previous tip, some 95 percent of tenants are good.  They pay the rent on time, are good neighbors, take care of their homes and are generally nice people.  We can encourage those tenants and discourage the bad ones with simple advertising techniques that explain that we carefully screen applicants.

By using wording such as “In order to keep our properties great places to live, we carefully screen our applicants,” we send a message to bad tenants that they need not apply and to good tenants that their homes will be pleasant places to live, assuming they rent from us.

You Can Think Like a Professional

Thinking like a professional real estate investor is the important first step in being successful in this business.  Professional real estate investors have a set priority in the way they think. 

First, they honor their investments.  They worked hard to obtain them and they treat them with honor.  That means they care about them, they never neglect them, and they pay meticulous attention to how those investments are doing.  They don’t just hope that everything will be all right; they make sure it will be.  They leave nothing to chance. They can tell how their properties are doing anytime someone asks.

Second, they value their good customers.  Those are the good tenants they selected to live in their properties.

Third, they look for ways to make their investments even more profitable.  That means looking to make sure the neighborhoods where they own real estate don’t become drug and crime centers.  They work with local government and neighborhood associations to ensure their neighborhoods remain great places to live.

They pay attention.  They expect to be successful. They play the real estate investing game to win, not just to survive.

That’s how you must think if you are going to be a real estate investing success.

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.