Avoid investment property cash killers
If your home is worth a certain amount in monthly rent in the current market, don't waste months chasing that little bit extra - check out these seven handy hints on how to avoid watching your cash draining away whilst trying to make your investment property pay...
The ‘home run' deal - getting exactly the price you want in terms of rental - can backfire on you. Making mortgage payments on an empty house whilst refusing to lower the rent, is a false economy. Tenants have a knack for finding out they could have had the home next door for £50 less every month. When your tenant knows they are in a great rental home at a fair price, it shows in the way they care for the home and how long they stay.
2. Waiting to get repairs done
"I will paint the house if it doesn't rent in a couple of weeks". Sound good? This is a really bad idea! You should always be thinking of the tenant your home will attract. If your home isn't in optimal shape to attract the very best tenants in your specific market area, you will only get tenants who don't care what their home looks like. You may get the home rented without the cost of the repair, but it may not be the tenant you want in your home for the next 12 months. If you end up doing the work in a couple of weeks... all you did is extend your vacancy and waste more money!
3. Ineffective marketing
A simple line ad in the paper may be the quick end to your vacancy. Be careful though - most consumers depend on the internet and our best applicants now come through online ads. You have to track your efforts to see what media produces the best (not always the most) calls per dollar spent. A "free" ad can cost you days or months of vacancies if it keeps you from finding the best tenants.
Whether you choose paper or online ads, you must have a well-written ad to get the phone to ring. You also have to be priced right, and have the home available to rent. If you aren't getting any calls, it is usually about price. If you are too high, most people won't even take a look. If you are getting plenty of lookers but no takers, check the home out to figure out what is turning people away.
When you hire an experienced property manager, you are buying into their proven systems for marketing and leasing your home, which eliminates the guesswork. If you decide to "save money" and lease the home yourself, be ready to commit serious time to your education and expect the process to take longer.
4. Using an inexperienced agent
There are many reasons to use a leasing agent, but if your agent isn't experienced, there isn't much benefit at all. In any major markets, there are literally thousands of real estate agents who want a commission, but very few with enough property management and leasing experience to make them a good choice. Be prepared to do your own ads, applications, and tenant screening if you plan to lease your home yourself, or through the help of an inexperienced friend, neighbor or relative. More property management tips are available on our website articles page.
5. Poor (or no) tenant screening
Most evictions are the result of a poor screening process. By extension, that means most repairs, vacancies and legal expenses are also due to approving the wrong tenant. This is an area where you MUST do your homework and not rely on first impressions or instinct. Looks can definitely be deceiving. Unless you have money to burn, screen well and know when to say NO.
Take a close look at the entire family of your prospective tenant. If you screen the parents, you might not know that their teenage son has a history of violent crime - leaving yourself open to a high risk of potential liability.
Many people who try to manage their own homes are very trusting, sometimes even skipping the use of a basic application. If you want to learn how evictions work, just go with your ‘gut' feeling on that prospective tenant and hope for the best.
6. Using a substandard lease agreement
Most leases on the market are very generic and seem to be built to not scare off a prospective tenant, rather than protecting the landlord. Do some tenants refuse to sign our lease because we have a "crime free" clause? We sure hope so. Does our "no dangerous breeds" language discourage the owner of 6 Rottweiler's? We want it to. If your lease protects the tenant more than the landlord, then you are headed for trouble unless you get lucky finding the perfect tenant.
7. Lost time
Losing time is the easiest and most common mistake that we see new landlords make. Calculate the rent value of each day on your home. If your home rents for £850/month, then each vacant day costs you almost £30! We see people all the time who "can't afford £45/month for a professional manager", but lose a week getting their ad in the paper (£230)... or take a couple of weeks getting the house rent-ready (£430)... or feel bad for the tenant and delay the eviction for a month (£850).
If you aren't prepared to be completely diligent and focused on the details, then you probably can't afford NOT to use a professional manager. Sloppy practices with your rental property can kill what should be a very profitable and rewarding experience.
SUMMARY
Managing your home is more complicated than it looks. Do your homework and either become an expert, or hire one. Your rental property or portfolio of properties is business and should be treated like one. The problems outlined here are easy to avoid, but expensive to experience. Give your business the time and attention it needs and it will pay you back very well over time.
Written by Home Lovers and www.nuwireinvestor.com
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