
THE FIRST TWO MONTHS ARE ALMOST ALWAYS THE MOST CHALLENGING
With housing prices, housing supply, and interest rates all stuck in the mud, more and more property owners are dipping their toes into the rental market. If you’re one of those people, congratulations on making a wise choice. Being able to collect rental income to cover your mortgage and other expenses is a great way to build equity and let your money work for you.
Successful real estate investment comes down to setting and staying focused on long term financial goals. This isn’t a get rich quick scheme and as you’ll likely find out, those first couple months can be very trying. The key is to have accurate expectations so you can weather the probable storm and enjoy the many days of sunshine on the other side.
LEARN MORE: HOW PROPERTY MANAGERS HELP CREATE LONG TERM, HASSLE-FREE TENANCY
STEP 1: THE RENT READY AND PRICING PROCESSES
Prior to a new tenant moving in, you want to do what you can to add value to the unit so you get the higher rental price for it. Importantly, this means adding value through renovations. You should have an idea of how much you’re willing to spend and how much these improvements will likely increase your monthly rent. Working with a reputable property manager is a great way to accurately gauge these all important variables. Although market prices may be elevated, you want to rely on the quality of your rental unit to drive the price, not external factors that are beyond your control. Do not rely on market trends to create value for you…it will come back to bite you.
Along those lines, you want to make sure your pricing is accurate. Compare your finished product with comparable rentals in the area to see what your likely price point is. DO NOT set a rental price based on what your expenses are. You may be able to get someone to pay above market value but rentals are far different than selling a house for over asking price. If your tenants are paying $2,000 per month, they are going to expect $2,000 worth of value. If the true price should be closer to $1,600 you can expect to hear from these tenants anytime any issue arises and you can expect them to be unhappy when they’re reminded that they’re not getting the value they thought they were paying for. If your price point is a burden for your tenants, they will be a burden for you.
LEARN MORE: 4 EASY STEPS TO FOLLOW TO GET YOUR RENTAL ‘RENT READY’
LEARN MORE: THE BEST REAL ESTATE INVESTORS SEE RENT READY TURNOVERS AS OPPORTUNITIES
THE TENANT IS IN…NOW WHAT?
Hopefully you’ve set the right price point and performed background and credit checks to ensure you have a good match for your property. You’ve collected the security deposit, have a signed lease, have collected the first month’s rent, and have provided the tenant with keys. So what happens next?
Best practice is to check in with the tenant the day after they’ve moved in to ask if all is well and there is anything you can assist with. We then recommend skipping a day or two and reaching out once more after they’ve settled in a bit. By being proactive and reaching out, instead of relying on them to come to you, you’re showing that you value their tenancy and you’re setting a culture based around finding solutions should any issues arise. You’re modeling open communication and it’s more likely the tenant will reach out to you should there be any maintenance needs, which is important in keeping your property in good shape.
LEARN MORE: ALL YOU NEED TO KNOW ABOUT SECURITY DEPOSITS
CLEAR EXPECTATIONS: HERE COME THE MAINTENANCE EXPENSES
Whether you ask about them or not, the first days, weeks, and month or two will likely include a handful of maintenance requests. Obviously, every property is different but a general rule of thumb is the longer the property was vacant before this tenancy, the more issues you can expect during the first two months. A good rent ready process will help you address those issues you can see, but it often takes living in a place to give the plumbing, electric, and appliances a true test.
What does this mean to you, the new landlord? That all depends on your expectations. If you’re aware that this wave is coming, you can prepare for it mentally and financially. Very often we see property owners spend upwards of $10,000 on a unit turnover and when they get a call about something not working two days after tenancy begins, their heads explode because they can’t imagine the property is anything short of perfect. If that $10,000 was all the money they had to invest in the maintenance of this property, a better approach would’ve been to invest 8K and keep the other $2,000 to cover those inevitable issues that tenants always sniff out.
LEARN MORE: THE EXPENSIVE TRAP THAT IS DEFERRED MAINTENANCE
THE EXTENDED PATTERN
No matter who you are and how nice your property is, you can expect this trend to hold for the first month or so. The quality of your property will dictate how large this initial wave is and how long it lasts. The good news is that once you weather that first storm, maintenance needs will slow down considerably. Over the next several months you’ll see your income after expenses increase and you can begin reaping the benefits that led you to real estate investment in the first place. Depending on your financial setup, you may want to put some of that profit into a reserve account to ensure you can cover those random maintenance needs that will arise at some point. But in sum, once you survive that initial rush, you should be good to go.
LEARN MORE: HOW MUCH MONEY SHOULD YOU HAVE IN YOUR PROPERTY RESERVE ACCOUNT?
A FINAL THOUGHT ON RELATIONSHIPS
Your being aware of this timeline will help your financial and mental outlook. It will also help you communicate in a way that maintains a strong relationship with your tenants. It’s a natural tendency for owners to become annoyed by the messenger, in this case the tenants, when these issues start to pile up. Remember, these tenants are ultimately helping you add value to your property, so do your best to address issues promptly and in a way that shows you value the relationship.
LEARN MORE: MAINTENANCE ISSUES ARE THE #1 POINT OF FRICTION BETWEEN LANDLORDS AND TENANTS
SUMMARY
Much in life comes down to having well-informed expectations. Real estate investment is a big commitment and it can be stressful, especially if you’re going it alone. Nexus Property Management® has been partnering with property owners for over a decade and we pride ourselves on our solution-focused approach and effective communication. If you’re interested in learning more about Nexus’ services and you're in one of our many territories, contact any of our teams across Arizona, Connecticut, Massachusetts, and Rhode Island.
LEARN MORE: THE TRUE COST AND VALUE OF REAL ESTATE INVESTMENT ( A LOOK AT SOME NUMBERS )
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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for 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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