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Be Patient Screening Tenants
Rental real estate is a solid way to make money. I'm particularly fond of residential properties, because people have to live somewhere. But it's not for the faint of heart.
I've seen it more than once: the first mortgage payment is due and the contractor isn't done with the renovations yet, or three tenants are moving out in the same month, or the partner (the one with the money) is walking away and leaving you to handle it all. It's very scary, and this is when the worst mistakes a landlord can make will happen.
When you're up all night trying to figure out how your dreams became a big financial burden is not the time to be making decisions that could affect your livelihood and quality of life. Real estate is an investment, and treating it like a business is the only option. If you're in a bad situation, you might rush the contractor and force him to cut corners that will bite you in the ass later. You might decide on a marginal prospect and get a tenant that pays for one month but lives in your investment for seven more as you try to get her out. You may consider selling the building in a down market to get out from under, and take a tremendous loss that will set you back for years!
If this sounds like a place you're in now, take a step back. Your situation may be bad, but acting rashly is bound to make it worse. Desperation will only dig you a bigger hole. There are banks, relatives, friends and even the Small Business Administration that might be able to help you with financing to get through a rough spot and to keep you from making bad decisions out of fear. Like it or not, short time challenges are going to crop up and if you don't have the iron constitution to stay the course, you're going to need a trusted friend or advisor to help you keep things in perspective.
Let's take tenant selection as an example. The first property I owned had two units, and one of my tenants moved out at about the same time my job required me to spend a considerable amount of time out-of-town. I was advertising the vacancy, taking the calls on my cell phone, and driving a hundred and twenty-five miles each way whenever I had to show the place. The stress of trying to fill the vacancy at a distance was high, and the mortgage payment that I could no longer make just added to the knot in my gut. Three weeks into my search I found someone who had a decent job and passable credit. Best of all, she was able to move in right away. Without more than a cursory glance at her references (and no follow-up questions about how she had come to need housing so desperately) I signed a three-year lease with her.
A three-month lease would have been a better choice, because that's all I got out of her. The excuses were varied, and the apologies sincere, but the money was late, lacking, and finally not at all. Since tenants don't care to call up landlords when they owe them money, I also didn't find out about the sewage backup in the basement until it was five feet deep. All in all, by giving into the anxiety of having a vacant apartment, I lost over seven thousand dollars in repairs, court costs, and unpaid rent. And that sort of tenant is almost worthless to file a judgment against, since collection is all but impossible. The exact circumstances will vary, but if you recognize the factors that fed my impatience, you may be able to avoid my trial by fire.
If you're not in a terrible situation, keep out of it! Plan ahead. Do you have an emergency cushion of at least three, but preferable six months of expenses? Do you know someone (friend, relative, property manager) who could take on new or add to existing responsibilities to keep things moving should you become laid up by illness or injury, or called away due to some life circumstance? Are your important real estate papers organized, with a list of them in the hands of your attorney, your spouse, and at least one trusted friend or associate? Is your will updated to include all of your properties, and all of your heirs? And perhaps most important: are you trying to go it alone, or do you have someone you can bounce ideas off of, someone whose input and insight you value and trust? Careful planning now will enable you to be patient later, when it really counts. Don't let fear deprive you of reason.
© 2005 Terence P Ward, all rights reserved. Terence P Ward is the President of Landlord for Hirehttp://www.landlordforhire.com, a residential property management service of Green and Clean Corporationhttp://www.Green-n-Clean.biz, based in the Mid-Hudson Valley of New York State. You may find contact information for him on either of his company's web pages.
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