This is a real estate investing success story but not without its ups and downs. In fact, the only reason I can call it a success story is because I learned a few very valuable and expensive lessons which I will not repeat. It gives a summary of some valuable lessons I learned through one particular rental property.
Lesson 1 – Don't Be an Accidental Landlord
I lived in a nice, large family home for 16 years before I decided to downsize to a smaller home. Instead of selling the property, for various reasons I decided to rent it out, becoming sort of an accidental landlord. The property did not meet my criteria for a rental property but I kept it as a rental anyway, and probably shouldn't have. My typical rental property criterion is a 3/2 in a decent location with a value around $100k that rents for around $1200 per month.
In rough numbers, the rent is 1.2% of the property value. I like to keep that number over 1%. This property has a value of around $350k and rents for $2200 per month – approximately .6% of the value. These are not a good rental property numbers in my opinion. Perhaps the smarter thing to do with the property would have been to sell it with owner financing instead of holding on to it as a rental.
Lesson 2 – Do Proper Tenant Screening
To make a long story short, I was over anxious to get a tenant in the property and did not screen them properly. That was a big mistake. If I had screened them properly, I most likely would have found out that they have done to previous landlords what they were about to do to me. Proper screenings with credit and background checks are a must for every tenant!
Lesson 3 – Train New Tenants to be Good Tenants
I didn't do this for this property, but do now for all new tenants. I should have had a meeting with these tenants before, or during the lease signing, going over all of the important paragraphs of the lease – Rent needs to be paid on time, every month, what the tenant obligations are, insurance requirements, move-in and move-out inspections, pets, occupants, HOA rules, security deposit and how to get it all back, etc.
If I had made all of these things crystal clear when they signed the lease, it would have helped make them better tenants and actually follow the requirements of the lease.
Lesson 4 – Stick to the Requirements of the Lease and Don't Give Breaks
If I had enforced the requirements of the lease from day one that would have made a difference. I learned the hard way they if you give the tenants a break in any way – late rent payment, add pets, add occupants, not following the rules of the lease, not following the rules of the HOA, etc. they will just continue to violate the lease and it will get worse every month. Now I know the lease and its contents, and require the tenants to follow the rules.
Lesson 5 – Start the Eviction Process Right Away
The eviction process starts on day 6! I had to go through the eviction process with these tenants and if I had started it as allowed by law on the 6th day of the month after not receiving the rent, I would have been able to evict them sooner and save myself some money and stress.
Now all of my tenants know that the rent is due on or before the 1st, is late if not received by the 5th, and the eviction process starts on the 6th. It's nothing personal towards them – it's just the way the business works.
Lesson 6 – Do Quarterly Inspections
If I had done quarterly inspections, I would have known a lot sooner that the tenants were violating the lease in many ways. Quarterly inspections with 21/30 day notices sent out for lease violations would have helped a lot to make the tenants abide by the lease, keep the property in good condition, and keep the neighbors and HOA happy.
In the end I will sell the property and make money and use that money to buy other investment properties, but if I had learned these lessons before this process, I would have been better off.
Hopefully others can learn from my mistakes. I call this a success story because I have learned from these mistakes and hopefully will not repeat any of them.