What NOT to do when owning rental property
I was aksed to write what i learned when i owned my duplex. I would like to share that experience here on this thread to let new people know what NOT to do.
In buying the property I actually did almost everything right. It was a great time. i got great financing and the property was sound and in a great middleclass neighborhood.
After that things got a little out of hand.
1. Do not forgive late fees. I tend to see the good in people and try to help them out. However if you forgive late fees for late payments you are asking for it. the tenant will continually be late as a result and hinder your ability to keep your mortgage current. He will realize he can put you off while trying to pay another debt ot bill.
2. If you do not know how to do something get help or hire a pro. I'm a pretty good number cruncher but Not so much a handy man. Sure I can unclog a toilet or change an outlet but major rehabs are not my thing. If you don't have the skills Hire a professional.
3. Keep a reserve fund for emergencies. I ended up using credit cards. My rents paid 2/3 of my mortgage. I did not build any reserve fund. It would have been great to have that when the hot water heater broke.
4. If you are owner occupied and considering leaving the property to buy another Make sure you update all the major things before you leave. I wanted to put central air and fix the roof and paint. None of these things were accomplished. My flatroof on the back addition cracked and I had a total ceiling collapse. I could not get my rents much higher becasue I had window AC units. the paint began to peel on the property.
5. DO NOT ALLOW PETS. they do almost as much damage as kids! But we have to allow kids! LOL
6. Do background checks on tenants. Don't be cheap on this. The money spent will usher out the riff raff and deadbeats. It's worth the money. I let this one guy in simply because we worked in the same busineess. in two months completely trashed my front unit. Including the brand new carpet.
6.5 Which reminds me. Do not use carpet. Use highly durable tile. Let the tenants buy rugs that they can trash temselves.
7. If you find yourself in a finacial hard spot Get help. I ended up 15000 in debt plus medical expenses simply becasue I thought I could do everything. I went to one bank and was told I could not get any equity out of my rental because it had not appreciated enough and it was not owner occupied anymore.
8. I filed bankruptcy in 2001. the next year real estate prices doubled and even tripled in some areas. Had I held on for another year I could have eliminated my debt but i was so burned out I just let it all go. someone got a great deal from me.
If I remember more I'll post it here but these were my lessons.
80 kph
195 kph
65 kph
80 kph
Re: What NOT to do when owning rental property
9. Never compromise your own standards to fill a unit. A good tenant will do no damage to a unit and stay for a reasonable period of time. A bad tenant will cost far more in damage than the rent they pay. Sometimes it's better to let one sit empty for a couple of months.
25 kph
Re: What NOT to do when owning rental property
I dont think thats a good movie for wanna be landlords.
Best plan is to plan for everything ! Evictions happen. They tell you to use what 5 - 10% in your calculations but in truth an empty unit costs a heck of a lot of money. Fixing what the last tenant broke, bringing things up to date, the costs to advertise and the pesky mortgage company still wants there money !!
In the beginning i figured if I had more rentals the easier it would be to pay the bills if one was empty. Gee isnt it funny how when one goes empty another is empty soon there after. Ouch !! So much for have more units making life easier. I really learned this lesson with the multi unit but I didnt pay enuff attention !
Another big issue is taxes suck. Maybe its a smaller issue today, but you buy a property and figure your costs on the last guys taxes. Then they decide the property is worth much more and they up the property taxes. Guess what they are doing tax relief. Oh wait thats for people who have homestead. Us real estate owners have no property tax protections.
The biggest lesson is also the most obvious and the one RK also repeats. You make your money when you buy.
I came back looking for my post about how John Burley is saying the time is coming to really make money in RE.
Eventually Banks will need to get those properties off their books. Seems like many realtors are becoming familar with "short sales"
Rob
PARKED
Great points, something you may add to deter reraf tenants along with with your criminal background check is something real simple a rental application. You would be surprised how this usually deters the tire kickers, and along with this charge them a fee to cover the background check.
Something else which is a tip i picked up from other landlords is when you do background check look at what type of liens the tenant has (ie child support, fines).
Something else which is off topic but from my experience, if you showing a place and tenant is one of these types who is asking you a million useless questions, move along to the next becAuse this guy or gal is going to be a ball breaker who calls you about everything stupid thing. IE a ant went across my floor you remind the tenant the unit was free and clear pests before they moved in. Rant off and good luck.
PARKED
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