Another 8AM Saturday driving to meet a contractor, another talk with a tenant. Why do I hold on to this headache? “Remember the long game, remember the long game, the grind will be worth it in the end”, I tell myself.
Why do these thoughts constantly fill my head? Let’s back up a bit. I’m on a path to financial independence and early retirement, with real estate and the stock market being my vehicles. I have acquired 3 doors on my own and inherited 6 more. These 6 are the ones that occupy my brain most often because I inherited quite the load. You see, my dad was a contractor so he was the all in one management and maintenance company. He fell sick to a stroke while I was away at college, and no one in the family knew you should run your real estate like a proper business. Somehow 7 years passed by and the building managed to stay alive, barely, but it did.
You can kick any problem down the road long enough, but reality will eventually catch up with you. Now I stand before a 6 unit building with rents well below market value, an endless list of repairs, and limited cash reserves. Hard work was never enough to scared me away, so I decided to come up with a plan.
The Trusty Tenant
Before I share my plan, you should know this building isn’t all bad, it’s gotten my brother and I through our primary school years and provided additional income when my dad was unable to work. It’s watched us even when we weren’t watching it. The plan appears easy to execute on paper. Start from the top floor, evict a tenant, renovate a unit, list the unit at market price, find new tenants and repeat until we have a newly renovated apartment building.
If only life was that simple. See, these tenants have been here since I was two. I’ve watched them grow. They’ve watch me grow. I’ve seen them raise their children. They are kind people, but is that enough to justify a 3 bedroom in northern New Jersey renting for $600 a month. You read that right, $600 a month. As part of the 7 years where the building took care of itself, the market continued to rise and we did nothing about it. Can’t cry over spilt milk, but I also can’t continue to spill the milk.
It’s not easy to justify $600 in rent but it’s also not easy to justify evicting a happy family. The wife has been able raise her twins and her husband has been able to provide for his family. While this decision would be easier if they weren’t kind people, I just have to tell myself it’s nothing personal, it’s business. I’ve decided I’m going to employ a property manager to do my dirty work. Personally, I need that layer of separation. I told you I had plan, I never said you were going to like it.
How To Protect Your Pocket As a Landlord
Get Everything in Writing
Always get everything in print! Your lease agreements should always strictly dictate your policies about late rent, pets, noise complaints, subletting, etc. When it comes to communication, getting everything in writing is critical. Should there ever be a dispute or legal action, keeping detailed records of any emails or texts, receipts, repairs, maintenance notices, etc., will help keep yourself as the landlord protected. Even if you missed it during the initial pass you can always make amendments to your leases
Take Before and After Photos
Be sure to always take before photos before a new tenant moves in and after pictures when they move out. Normal wear and tear are expected, but damages that their deposit wouldn’t cover that’s something you’ll want to document in case you need to charge your tenant for repairs or replacements. Documentation is essential should you get in a legal dispute, and photographs or videos are the best evidence. In addition, fill out a tenant walkthrough checklist and have the tenant sign it.
Clearly State Lease Violations
Your lease should always strictly state what constitutes as a violation and what happens when those terms are violated, including but not limited to late rent, undocumented pets, policy violations, etc. Infractions of the tenant must be in a clear and conspicuous manner. These resolutions may include warnings, fines and evictions.
Any Fees or Deposit Requirements Should Be Specific
Paying a security, damage, or pet deposit is common when renting a home, and the name of the deposit dictates what those funds can be used for. Security deposits are used to secure the payment of rent and utilities, but that deposit can also be used to repair damage if your rental agreement clearly states it. If you have a damage deposit, those funds can be used to repair or replace damaged things beyond reasonable wear and tear. If you allow pets and have a pet deposit, the funds can be allocated to fix any damage caused by the tenant’s pet, such as broken blinds, carpet cleaning, or yard damage.
Screen Your Tenant
As a landlord, you can save yourself a lot of headaches by meticulously screening your tenants before handing the keys over. You should always:
- Pull credit reports
- Order a background check
- Talk with current and/or past landlords
- Talk with current employer
- Have a detailed application and fair security deposit
It might seem like a bit much, but knowing who you’re renting to beforehand, will help you weed out any bad tenants and only rent to good ones. If you don’t want to do the screening yourself, hire a real estate agent to take of the screening for you.