Owning rental property for about 3.5 years now has been a phenomenal experience and has taught me more than I would have imagined. Sometimes, great successes, and other times, huge tuition payments. I don’t expect you to agree with me, nor take my ideas and run with them. Simply: take them as a few thoughts from another investor. I am just a random guy, who’s fallen in love with real estate, and has been surrounded by phenomenal people that make this real estate thing very enjoyable.
The successes are great, but if I were to bring you value, it would be sharing some concepts that will help you avoid some of the tuition payments I have had to pay. From going through evictions, major rehabs, almost buying properties that would sink me financially… the list goes on. I’ll share some larger thoughts and concepts that you can either use, or probably relate to, because some of you reading this are far more seasoned than I am. And if we are being honest, I have a TON to learn. So don’t take these as commandments, but a few thoughts from a local duplex guy.
Last issue, I wrote an article about offense and defense and you can look at a lot of these concepts similarly:
1. It’s All About Who’s:
I’ll skip the 563 stories about what to avoid and just give you the best piece of advice I can, especially for people that have my experience level or less. You can solve problems with two solutions: a who or a how. If you can’t Google it or YouTube it, you need a local professional to help you with the project. If you are weak at something, let’s say analyzing a foundation repair. A “who” is often the best answer. Pay someone to help boost your IQ in this area and what you are trying to grow in. Walk the property with them, pay them for their time, and over deliver. You not only were able to draw off their many years of experience, but you now have a connection that you can use the rest of your career. You network is your net worth is often said, and deserves to be repeated.
2. Worry About The Big Number:
When you are looking at increasing rent, make sure you are covering your additional expenses, but here’s a concept that I’m bullish on. Example: you have a 2bedroom unit that’s rented by a great tenant and is in good shape. You are at $825, but want to be at $900. $825×12= $9,900/yr in rent, your $75/m increase would bring and additional $75×12= $900/yr. If you think this would be a headache/major shock to the tenant (look at #3 in this article) you may be sacrificing a good tenant and 10k/year to try to grab an extra $900, I would make the argument to increase rent by $25-40 now which would be more stomach-able, and reach the target over 2-3 years instead. The tenant is the value in the property. Don’t mess up a good one, or risk 10k, over an additional $40/m. *if the tenant sucks, ditch all of this obviously*
3. Reduce Headaches For Your Customer – The Tenant:
This is huge. When I walk properties now, I look for headaches that would bother a tenant and avoid properties that have large headaches, or multiple small ones that I can’t solve. Examples: large expenses, bad parking, loud/busy streets, funky layouts, creaky floors, steep stairs, no storage, no garage, poor quality lighting/water pressure, etc. When a property has headaches like these or others, tenants won’t want to rent or stay long term, and savvy buyers won’t buy it when you exit. This applies to flips and other projects as well.
4. Justifying is Weak:
If you have to talk yourself into something, you probably shouldn’t do it. Enough said.
5. Charge Slightly Below Market Rent:
Think about it, if something is $50/month cheaper you will often convince yourself why it’s better for you or why it’s the best choice. Tenants do the same thing with rent. In addition, if they are thinking about moving and check Zillow or other sites, they will see that they are similar to other options in the area. They won’t move if they have to pay the same or more for a similar product. We can all agree, moving sucks. Obviously you have to make sure your property is worthy of what you are charging, and take that into account.
6. Trust Your Gut:
Your inner caveman intuition is smart, if in doubt, add some caffeine and make the call. If unsure from there,revert back to #1
7. Prevention Is Key:
A few quick tips: schedule once a month drive by’s for your properties, a once a year full walk through, and don’t bring on tenants that will make you want to do more than that. Preventing problems or catching them early is a massive ROI move.
If you make a mistake, forgive yourself, you aren’t perfect. However, the golden rule is don’t make the same mistake twice. Adjust.
That’s it out of me for now. I hope some of these either made you think a little or are something you would be willing to experiment with. I’m sure in another 3 years, I’ll have a list 3x longer than this one haha. The great thing about this real estate game is: it’s a journey. It’s full of lessons and if we can learn from each other and share a few tips with those around us. As always, here’s a firm handshake for betting on yourself, and we’ll see you next issue.