Buy, Fix & Stay, Part 4 - 7 Tips to Killing Common Landlords Headaches
Hey Clever Investors…
In today’s conclusion of our series, Buy, Fix and Stay, I’m going to give you seven tips to prevent landlord headaches that I learned through the School of Hard Knocks. But first, let’s take a recap on the previous lessons so we can pick up exactly where we left off:
- In Part 1, we talked about How to Create Long –term Wealth as an Investor
- In Part 2, we discussed What Types of Investment Properties Make the Best Rentals
- In Part 3, we touched on Essential Landlord Docs, and How I Manage My Rentals.
So this brings us to now… let’s jump back in…
Tip #1: Always have an attorney create your legal contracts.
We just discussed this in our last lesson...
If you’re managing your own rentals, then you’re going to need to connect with a local real estate attorney and get some custom contracts and forms created that are designed for investors and abide by your local state laws.
It’s my recommendation that if you download some documents off the internet and plan on using them, at least have a local real estate attorney check them out before you use them.
Tip #2: Always screen your tenants with background checks.
We just covered this in the previous lesson as well…
Part of the application process is doing background and credit checks to prescreen any potential tenants. I use ACSDataSearch.com, ERenter.com or LandlordStation.com. They pretty much all cost around $25 to $30 per application to check people’s credit reports, criminal records or any previous bankruptcy judgments or evictions filed against any of your potential tenants.
These services pretty much uncover anything that I need to know to make an informed decision.
Always run a background check even if you don’t care about the person’s credit.
Tip #3: Never leave a homeowner who was bailed out of a foreclosure in the home.
It’s just not a smart business move. This rarely works out.
I used to buy a lot of houses down at the foreclosure auctions and I would show up at the property and it was occupied by the previous homeowner and they would always beg and plead for me to keep them in as a tenant and that they’re going to pay on time and blah, blah, blah, blah, blah, blah.
Sure I feel badly about the situation, but sometimes you have to make hard and uncomfortable decisions.
I’m telling you, eventually you’re going to end up evicting them. It’s going to be much harder because they have a really strong emotional attachment to the property. And it’s going to be very difficult for you to work with them, especially if they stop paying.
Ugh, okay, enough of the Debbie Downer talk, moving on…
Tip #4: Be proactive, not reactive. Get to know your tenants.
This is really, really important. The better your open lines of communication are with your tenants, the happier you’re going to be as a landlord.
What’s going to happen if you don’t have that open line of communication and you’re not fostering communication between the two of you?
They’re going to shut down and you’re going to become extremely frustrated and the stress and headaches of being a landlord are going to elevate or skyrocket and you’re not going to be having fun. Always be proactive, not reactive.
Tip #5: Deposit rent checks directly into your bank account & email the tenant a receipt.
Systematize and streamline this process…
What do I mean by that?
If you streamline your process, you won’t end up going to your mail and getting checks, and then doing all your bookkeeping and accounting, and then going to deposit checks into your bank… no one wants to do all that when you’ve other important REI tasks to be focusing on.
There’s a lot of technology out there for landlords. Utilize it. Make sure that your accounting and your bank account and everything’s synced up to make everything online simple and most importantly, systematized.
Tip #6: Do not hesitate to evict a nonpaying tenant.
There’s no such thing as a nice, successful, profitable landlord.
Throw down the hammer the second they stop paying, and I promise you, if they come up with the money, then they’re going to somehow come up with the money next time.
If it was just a one-time thing, you’ve still gotta let them know that you are serious about collecting rent just like it states in the contract they agreed to and signed. It’ll go something like this:
“Hey, look, this is just business. This is nothing personal. I’m not a nonprofit. I’m not interested in letting you live in my properties for free. Next time, pay on time, or I’m going to do the whole thing all over again.”
You’re going to train your tenants to pay you on time. It’s okay to dangle an incentive carrot. I’ve known landlords. I’ve done this myself. I’ve known other landlords to do say something like:
“Hey, listen. If you pay on-time every single month for 12 months, I’ll go ahead and not raise your rent at the end of your lease if you decide to stay.”
It’s kind of a carrot that you dangle out there, but the important thing is, don’t be a nice guy. You’ve just gotta do it – start the eviction process on nonpaying tenants. You’re going to be much happier when you do and all your tenants are going to fall in line, or you’re going to evict them and move on to somebody who’s actually going to pay you.
#7: Find Tenants that will Rent-to-Own
This one’s really, really good!
When I first started in the rental business, I really didn’t understand lease options and rent-to-owns or how to structure those. That’s why I say become a master of your paperwork…
But in this tip, I’m telling you – try finding rent-to-own tenants and build into the contract that they’re responsible for normal repairs.
You always hear the horror stories of being a landlord. “I’m always fixing toilets” or “I’m always dealing with bad tenants.” The way around that is to structure lease options, otherwise known as rent-to-own agreements, that way, you’re not acting as a normal landlord.
They put up a big option deposit. They’re coming into the relationship with you with the mindset of being a future owner of that particular property and it completely restructures your relationship with them from the get-go. They’re not going to call you if a toilet breaks.
They’re only going to call you if major issues with the house are occurring, so try to structure all your deals as rent-to-owns, and you’re going to really, really enjoy being a landlord.
Plus, and this is a BIG plus, rent-to-own tenants take better care of your property, seem to pay on time, and typically pay an option deposit (sometimes a large option deposit), which adds to your overall profitability.
The one sentence wrap up.
Buy, fix, and stay is the most proven investing strategy for building long-term wealth.
I hope I gave you guys something to think about and saved you from some potential future woes.
Keep it real,