Avoid Evictions And Maximize Returns For Your Investment Properties With Proven Best Practices.
Rental property can provide passive income, tax advantages and outstanding returns that are extremely hard to duplicate or surpass with other investments such as stocks or bonds. Every investor is looking for the highest possible returns while accepting the lowest possible risk. Investment properties are often the best option when you take into account the potential leverage created with financing, inflation hedge with price appreciation and the cash flow from collecting rents. The problem with investing in rental property is that it needs to be continuously managed. Managing rental property is a complicated and difficult thing to do effectively. A few tiny mistakes can cost thousands of dollars and turn an investment property into a huge financial burden for landlords. Some common mistakes landlords make are physically collecting the rent, being an audience member, inaction or waiting for change and being flexible when they should be consistent.
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The 2 Rules Of Investing & Letting The Rent Come To You.
The first mistake new real estate investors make is going to collect the rent. I know, it sounds counterintuitive that collecting money as an investor is a mistake, but it is a huge one! The most important skill any investor must have is the ability to efficiently allocate resources. Warren Buffet said it best with his 2 rules of investing "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1." Take those two rules and think of the common saying that “Time is Money” and you will understand the basic concept that to be an investor you must strive to never waste time or money. You can and should make paying rent as easy and convenient as possible, but you should not be physically going to the property, knocking on doors and requesting the rent. This quickly becomes a time drain with contacting, scheduling, travel time, potential missed appointments and more. Worst of all there is no potential return for this action, the rent is still the same! Set up a PO box or use your office address if you have one to receive rent checks and eventually you will want to set up the ability for tenants to pay rent online. It is the tenants’ responsibility to make rent payments so make it easy for them and don’t allow them to expect you to come and get it. This will lead to the very common story of “you never came to get the rent” which is often followed by missed appointments, and excuses looking for an audience.
Don’t Join The Audience By Paying For Stories!
A tenant late on rent will usually have a story for you. It can be a valid issue or temporary hardship, a white lie, or a full fictional epic worthy of publishing. The problem is anything the tenant offers other than the rent is of no value and cannot be deposited or used to pay your mortgage unfortunately. The same way your mortgage is due even if you were unable to collect rent and called the bank with your story is the same way you must remain professional and manage your property like a business. It is at this time that the best property managers will educate the tenant on the eviction process, what to expect and what options they will have if they are unable to produce a payment before an eviction case can be filed. This is a very common point of friction that property owners fail and decide to employ the “wait and see” strategy. Inaction is the number one cause of large financial losses for real estate investors with rental property. Nexus Property Management® has dealt with 100s of these eviction situations and very often new clients will sign up for management after waiting and hoping to receive the rent payments for months and months.
Time Is Money and Inaction Is Lost Money.
Action needs to be taken to limit the risk of loss with an eviction. Every passing day more rent is due, it is less likely to be collected and becomes harder for the tenant to catch up. Eviction cases must be filed at the earliest opportunity to provide recourse for the landlord. Many owners don’t file an eviction because they are unfamiliar with the process or they are looking to avoid the added legal expenses. It is important to note that a property management company will have a lease that stipulates that legal fees are the responsibility of the tenant if nonpayment causes the need for and eviction action. The majority of eviction cases result in payment arrangements that include legal fees or short term agreed upon move out dates. Both of these common agreements help reduce risk for the landlord and give tenants the opportunity to catch up on the rent with an actionable set of terms.
Nick D'Agnillo is the CEO & Founder of Nexus Property Management®. A National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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