You mean I have to deal with tenants? I don't want to be fixing toilets in the middle of the night or running around trying to fix leaks on cold and rainy weekends! And the last thing I want to deal with is chasing tenants about late payments or deal with people who won't take care of the house.
That's sometimes the reaction I get from people when I tell them about our buy and hold investment strategy but their reaction really isn't based on rational experience. I call it “tenantphobia” – the fear of tenants. It's one of the biggest obstacles I see in investors, week after week and year after year.
People are sure that as soon as they buy a cash flow property, their tenants are going to start bleeding them dry – not paying the rent, tearing up their place, making a general nuisance of themselves. Everyone knows someone who knows someone whose brother's wife's cousin had a rental property and had the tenants from hell. Too many headaches, they say. Too much hassle.
Too bad for them. Because people with “tenantphobia” will never be successful in real estate investing.
They'll let their irrational fears keep them from achieving financial independence. They'll let the naysayers get to them, listening to the negative messages that have been programmed into their heads since childhood: Don't take risks, stay within these lines, keep your head down and you'll be fine. Don't even think about stepping out of the box.
If you've got a touch of tenantphobia yourself, don't feel bad. Just about everyone does when they're getting started. But I've got just the thing for what ails you.
Cure For Landlording Fears & Tenantphobia
Will some tenants cause problems? Sure they will. Will you have some who won't pay the rent? Probably. Will some of them break things in your properties? Of course. I'd be lying if I told you there was any way to prevent these problems 100% of the time.
However, there are things you can do in the screening process to make sure you get tenants who pay on time and give you the least amount of hassle. Here are just 2 ideas:
1. Talk To Their Employers.
Ask their boss whether they show up for work on time? Are they responsible workers? You want tenants who are reliable.
2. Talk To The Tenants.
Ask to see their current unit. If they refuse, that's a red flag and I wouldn't recommend that you take them in as a tenant. If they do allow you into their current unit, observe how they live. Is it filthy? There's a difference between messy and filthy. Messy can pass but filthy doesn't.
Don't over think this. You don't have to be a professional to determine whether someone takes care of his or her property – and whether he or she is going to take care of yours! But every so often a rotten apple will get through. Don't take it personally – it happens. The key is to anticipate it – and be prepared.
Think about it – when Sam Walton was running his first Wal-Mart, do you think anyone ever shoplifted from him? Do you think any of his employees ever stole something? Do you think any punk kids ever broke one of his windows or stuffed up one of his toilets?
Of course they did. But when those things happened, Sam didn't throw up his hands and say, that's it, it's too much hassle to deal with theft and vandalism, I'm closing up shop. He didn't take it personally. No – he did his best to prevent those things, and then accepted a certain amount of loss as a cost of doing business – and still made a ton of money.
It's the same in real estate. You do your best to prevent tenant problems, but when they do occur you're prepared to respond to them quickly and you can absorb the loss. I recommended setting aside 5% of your monthly cash flow in reserve to cover these kinds of things. Just work it into your budget from the beginning.
Don't let fear keep you from realizing your dreams. Educate yourself, talk with people who really have experience, and most importantly, get out there and try it yourself. Before you know it, you'll be cured of your “tenantphobia” – and on your way to financial independence.
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