Being a Successful Landlord
Being a Successful Landlord
Most landlords get into the business because they think that owning rental properties would be financially rewarding either in the short-term, the long-term, or both. Many landlords have been successful, some spectacularly so.
It is important to understand that landlording is a business that requires knowledge, organization, and a lot of hard work.
Ways to improve your chances of being a successful landlord include the following.
Education
Knowledge is important for success on a number of levels. At one extreme it will make your job easier. At the other extreme it will keep you out of serious financial and/or legal trouble.
Education is not a one-time thing, but requires a continuing commitment. Investors and managers must keep up to date regarding laws at federal, state, and local levels. Additionally, they must keep up with market trends.
Properties
The chance of being a successful landlord is greatly improved when the investor makes good choices when purchasing properties. It is not always possible, even with the best of management skills, to make up for buying bad properties.
Location – As we’ve all heard many times (probably ad nauseam), the three most important things related to value of real estate are “location, location, and location.”
Physical Condition – A property that is a good candidate for purchase often looks to be in bad condition. That’s OK if it has the “right things wrong with it.” “Right thing” examples include needing paint and having ugly wallpaper, things that are usually easily and relatively cheaply fixed. However, the “wrong things wrong” such as bad floor plans or unstable soils are not usually economically corrected.
Tenants
Landlord-tenant interactions can potentially result in both financial losses and a variety of legal problems. Having “good” tenants means both selecting good ones in the first place and retaining good ones for as long as possible.
Adequate screening is critical to obtaining good tenants and proper selection from those who have been screened is important in order to both end up with a good tenant and to avoid claims of discrimination.
You should try to keep good tenants as long as possible. Vacancies are one of the largest expenses in the operation of income property. Vacancy costs can be minimized in three ways – first, by minimizing tenant turnover; second, by minimizing the length of unavoidable vacancies; and third, by minimizing the delay in commencing an eviction when one appears necessary.
Accounting
In order to have a successful business of any kind it is necessary to know the financial status of its operation at all times. There are a number of ways for real estate investors to implement accounting and property management systems that
are easy to use and provide the information required to (1) manage their properties effectively and profitably, (2) easily file accurate tax returns, and (3) have the necessary records in case of an IRS audit.
Documentation
A wide variety of documentation is generated by a properly operated landlord business. Documentation can be divided into two categories – (1) property related and (2) tenant related.
For both categories, landlords must create adequate documentation and retain it for appropriate lengths of time.
Maintenance
Not staying on top of routine maintenance and necessary repairs is one of the most shortsighted and costly mistakes that landlords can make.
First, poorly maintained property does not attract the best tenants. Second, if the property is not kept in good repair the new tenants will start out having a bad experience and after complaining to the landlord they may also file a formal
complaint with governmental housing agencies. Third, many types of maintenance items that are not taken care of when initially discovered, can eventually be the cause of other problems that are substantially more costly to correct.
Risk Management
Real estate investing includes numerous potential risks and it is important that these risks be managed. Most landlords are aware of the importance of using limited liability entities as a means of providing asset protection, but asset
protection is only one aspect of risk management.
Asset protection becomes important primarily when all other risk management measures have not been totally effective – that is, asset protection actually becomes the protection of last resort.
All risk management measures, including asset protection, are like insurance in that you have to put things in place prior to occurrence of the catastrophe, not after the fact.