The decline in real estate prices has created a tremendous opportunity to invest in real estate at very low prices. Prices have declined significantly to the point where positive cash flow on rental properties is a reality. Many investors are considering becoming landlords for the first time. Owning real estate long term is one of the easiest ways to create long term wealth. However, before you jump in to the deep end consider the following tips from a landlord with many rental properties.
- Being a landlord is a very tough job. You will need to be emotionally ready to deal with dead beat tenants, chasing down late paying tenants and dealing with evictions, repairs and maintenance issues. When your tenant's toilet doesn't work or their central air is on the blink it becomes an emergency. And the one that they will be calling will be you. Expect to be called at all times including during important business meetings, at your kids football match or when you are on vacation.
- You will need to have a system in place to deal with maintenance and repairs as well as a good handyman to handle these issues for you. You will also need to have access to a good plumber, air conditioning company, electrician and roofer.
- Repairs and maintenance can be much more than you anticipated. Every time a dead beat tenant is evicted, you will be responsible for making the property rentable. This will usually include cleaning up and painting the property at a bare minimum. Not only will this cost money but you will not be receiving any rental income while you clean and repair the property.
- Marketing and advertising to find tenants can be expensive. Expect to pay money for classified ads, signs, lock boxes, flyers etc.
- Property taxes and insurance rates can increase after you have purchased the property
- Rents can decline like they have in many areas over the past few years. The combination of higher payments and lower rents can create negative cash flow situations.
- There has been a glut of rental properties because of the foreclosure crisis. Many real estate investors became reluctant landlords when they had no success selling their properties. This has created a glut of rental properties which has been very good for tenants and very bad for landlords. It might take awhile before this tremendous supply is depleted.
- Do not discriminate based on race, ethnicity, sex, religion, disability, sexual orientation, age, political view points and any other violations of Federal Housing Laws. Be aware of local laws including code enforcement requirements, zoning etc.
- Plan on having “reserves” of at least six months rent in case of an emergency such as a hurricane, fire, flood, damaged roof etc.
- When you calculate your cash flow for the property, assume that one month's rent will go towards repairs and one month's rent will go towards vacancies. This is a good conservative assumption which considers that you will only keep ten out of every twelve months rent.
- Being a landlord is a business. Treat it as such and do not let emotions get in the way of reason. Your tenants rent payment is what pays your mortgage. If they cannot pay then they need to either leave voluntarily or you will have to evict them.
- Either you control the tenant or the tenant controls you. Be firm and when they are late charge a late payment and put a 3 day notice on their door. Let them know that there will be no tolerance for late payments.
- Always keep your rental properties clean, tidy and well maintained.
- Think long term. No one ever got rich over the short term being a landlord. It takes time for real estate to appreciate.
- Know the landlord/tenant laws for your state. Florida is a landlord friendly state. New York is a tenant friendly state. Consider very carefully where you want to invest and what the laws are like in that state.
- Always handle repairs and maintenance issues as soon as you are notified about them.
- Be kind and courteous but fair and firm with your tenants. Do not become overly friendly with them. You are their landlord and they are your tenant. It is very important for that relationship to stay that way.
Thanks for allowing me to share my experience and expertise with you.