New real estate entrepreneurs who have entered the field of owning rental properties have an all-too-common ailment called “landlord discouragement.” After that first rental property purchase, the reality of becoming a landlord generally hits them right in the eyes. Now they are faced with owning property, managing tenants, and continuing with an ongoing investment program. Yes, owning one rental property is only the beginning of the landlord process.
The most important priority of the new landlord should be “the rent.” Rent is what can create a positive cash flow and eventually allow the tenant or tenants to actually pay off the mortgage on the property. As the rent increases, the actual value of the property will also tend to increase as well. Everything you do as a landlord should be focused on collecting and protecting the rent. When this is done correctly, the income increases and you will develop better and better tenants.
Why then is discouragement so common among first time landlords? The answer is actually quite simple: the new landlords become immediately responsible for maintaining the property, finding and keeping good tenants, and managing the finances of the property like an expert. These multiple tasks far-too-often seem undaunting and formidable. There are four easy-to-understand ways to overcome this ailment before it derails your future rental property adventure. Each of these ways are based on conducting a review of certain key issues and concepts.
Way 1 – Review Your Personal Life. Before you can correct how you feel, you must determine what is causing you to have these personal feelings of fear and doubt. Are you concerned because of the financial burden you are facing, or are you facing different challenges that are more evident because of the new burden of being a landlord? Take a few minutes and evaluate your personal life and see if there are personal underlying issues that are manifest by your becoming a landlord?
- Personal Health Problems. Are there health problems that are becoming more evident because you are now experiencing new investment challenges? If you have problems dealing with people like your new tenants, you need to address that situation and consciously try to become more outgoing.
Perhaps you have a health problem that requires you to spend a great deal of time dealing with doctors and hospitals. Now you may not have the time to spend looking for tenants or dealing with property issues. Whatever the issues may be, you need to prioritize your time in a way that allows you to also take care of your responsibilities as a new landlord.
- Outside Distractions. Is there something in your life that is now taking more time to deal with? Are you dealing with family and children issues? Is there a personal problem with your employment? In essence, is there some outside distraction or influence that is now taking more time than you had originally planned? Whatever the distraction, you will need to deal with it and then manage your time more effectively. Only when you control these outside factors will you become an effective landlord.
- Personal Finances. Has the purchase of the rental property placed you in a personal financial hardship? Needless to say, the investor should avoid placing personal finances in a precarious position due to a property purchase. If you have placed yourself in such a situation, consult with professional help and consider getting a partner or garnering help from some outside resource. Until your personal finances are in order, you will not feel comfortable in your new role as a landlord.
Way 2 – Review Your Property. Just as your future success is dependent upon the rent from your tenant, the tenant is also dependent upon the property itself. You, as the investor, need to evaluate and appraise that first rental property and make sure that it is conducive to providing the rent you are after.
- Property Financing. The first thing you need to evaluate is the actual financing arrangements you have made for the rental property. This financing should have been examined in detail before the purchase was made, but if there is something that could hinder your success, it should be evident immediately.
Perhaps your purchase was made with an upcoming balloon payment or an adjustable rate mortgage that could increase your payment dramatically, or maybe you accepted a high interest rate that now exceeds the norm. Regardless of the actual financing problem that you identify, you need to consult with credible financing experts who can possibly guide you to a more beneficial arrangement.
If you identify a potential problem that is going to increase your payment or make it necessary to acquire outside funds, don’t disregard the opportunity to bring in a partner who can help. Before selecting such a partner, make sure you will be comfortable in the arrangement.
- Location Problems. It’s true that location is key to almost all real estate purchases and that is definitely true for rental properties. If you are having problems renting or finding qualified tenants for your property, it’s possible that the location may be at fault. Now that you own the property, you need to make the most of the situation.
Start by improving the “curb appeal” of the property. Great tenants like to live in great properties. The first thing your potential renter is going to see is the curb view, so make that first impression very important. Mow the grass, trim the shrubs, and most importantly, remove all trash or discarded items from the property. The better you make the property look, even in a lesser valued location, the better chance you have of finding the right tenant.
- Repair and Maintenance Problems. Hopefully, you had a reputable property inspector due a complete review of the property before the purchase was closed, but if not, you need to carefully evaluate any existing repair problems that need to be addressed.
Start with repairs that will have to be done before any potential tenant will take occupancy. These repairs generally include appliances, water heater, furnaces and the like. It is important that you get credible help in choosing the right appliances for the right price. The most inexpensive appliances are not always the best. A truly inferior appliance that comes with a cheap price may have to be replaced much too often. Get good appliances that don’t have all the bells and whistles.
Avoid renovations that won’t increase the rent you receive. Adding an extra bedroom at a low cost may be wise, but only if the rent can also be increased. If you allow tenants to request renovations, chances are that these same tenants will not want their rent to be increased.
Regardless of the repairs that need to be done on an immediate basis, you will continue to have repairs. Make sure that you set aside a reserve account from the rent to pay for these repairs when they happen. When unexpected repairs surface without funds set aside for their payment, you are headed for more discouragement.
- Rent. You need to evaluate if you are charging the correct rent. Are you asking too little or too much? Take the time to compare your rent to comparable properties in the area. Make sure you are comparing apples to apples by determining what you offer as to what the other properties offer.
Way 3 – Review Your Tenants. Prompt rent is dependent on great tenants. This being the case, you need to review not only who your tenants are, but how you are getting them. When you understand the marketing process, you will find tenants who are willing to pay top dollar for the right property.
- Marketing Process. Since you are new to the landlord process, you will want to make sure you start with an application form that allows you to choose the best tenants. Many new landlords become discouraged because they simply fail to use the right documentation. Avoid this problem by collecting the right information to choose the best tenant.
The first thing you need to do is to advertise your property effectively. You can use existing methods such as flyers and notices, but sometimes you will be more effective by contacting the HR Departments of local employers and governmental authorities who can provide your information to new hires.
Don’t forget to use proper signage on the property itself. Once again, we can’t stress enough the importance of good curb appeal. Let the property start to sell itself.
- Get the Right Tenants. Once you have identified potential tenants, you need to screen them to locate the great tenants. This process starts with a well-documented application form. As you develop your personal application form you will see why the information you collect is so important.
- Personal Information. This should include the name or names of the prospective tenants along with names of the children. Don’t forget to include if they have pets and what type of pets they are. Most landlords don’t allow pets, but if you do, you need to realize that there are expenses incurred with allowing pets in the property.
- Social Security Number. Yes, you need to collect this in order to get a credit report and to verify employment information. It should be guarded carefully, but it is essential to finding credible and qualified tenants.
- Previous Address. You will want to check on their past rental history. This also allows you to discover information about their past payment history.
- Driver’s License Number. This information will allow you to do some local background checks.
- Employment. You will want to know who their employer is and how long they have worked there. You should also ask how much they earn, as this will assist you in determining if they will be able to afford the rent. You should also ask for a contact at their employment as you will want to verify their employment.
- References. Besides any family references they may provide, you will want to solicit at least two or three references of non-family references. Once you have these references, make sure you follow up and talk to them.
- Identify the Characteristics of Great Tenants. Every landlord wants great tenants and here are a few qualities of those individuals you would like as your tenants.
- Prompt on their Rent. Naturally, you want to collect your rent on time. The best way to do this is to offer an incentive to pay their rent through an “auto pay” arrangement with their bank. When you talk to referrals from a prospective tenant, try to determine if they pay their bills on time.
- Clear Communication. You need to be able to talk clearly and understand your tenant.
- They Are Neat and Clean. If your prospective tenant comes to apply for the property in a dirty car filled with trash, chances are that they will treat your property the same way.
- Good Employment. The more stable the employment picture, the more stable your rent will be. This is why you want to contact their employer.
Way 4 – Review Your Management Options. If you are immediately discouraged as a new landlord, you may just be overwhelmed by the extra responsibilities you now have as a landlord. Perhaps you are spending a great deal of time dealing with new tenants or just collecting rent. Maybe you are flooded with minor repair issues or simple questions by tenants. Regardless of the reasons, you are probably aware of increased time obligations that come with the landlord responsibilities.
- Continue to Personally Manage the Property. If you elect to continue doing all the management of the property, the first thing we recommend is to document everything and keep great records. This takes more time at first but will pay big dividends when you do your taxes and when you eventually decide to sell the property. It will also help you in following up on repairs etc.
This is your first property and you should use it as a learning experience. Yes, you have added time obligations and financial responsibilities, but these can help you learn the landlord business. Consider this first property as an educational experience. You will make mistakes, but if you keep good records, you will only make them once.
- Consider Professional Rental Property Management. If the responsibility of being a landlord is too much, go ahead and seek professional help. It will cost more, but may save you the added headache of managing the property yourself.
SEE ARTICLE: “5 Reasons Why Seeking Professional Help When Starting in Real Estate May Be the Key to Success”
Discouragement is natural among almost all new rental property owners. How you handle it is most important. There is no doubt that you may make a few mistakes or even failures as you learn to become an effective landlord, but remember what Dale Carnegie said: “Develop success from failures. Discouragement and failure are two of the surest stepping stones to success.” Your future can be bright and success be right around the corner as a new landlord