Full Disclosure Finance

By Justin

In light of operating my investment property for a little over 5 months I’ve learned some pretty hard lessons and also discovered some that make life a lot easier. I realized very quickly that if you live more than 1 hour away from your property you must be able to manage a property at a higher skill level. The ability to be there quickly and often can compensate for a few errors along the way. A resource I’ve used to learn about the landlording gig is by Jeffrey Taylor “The Landlord’s Survival Guide”(see below). Over such a short period of time relative to other veteran owners, I feel like my next property could be managed significantly better just after what I’ve learned so far. Here’s a summary of the key lessons learned so far. Please examine this info and see if it applies to your situation so you don’t repeat my mistakes.

Say goodbye to cheques

I started out picking up cheques every month, which meant I had to make a trip to the property every month guaranteed. Then I went with postdated cheques that eliminated the need for the cheque pickup trip. After talking to other property owners, even postdated cheques are archaic. The new way to do it is through direct account withdrawal. If you belong to a health club they usually do this.

Requesting a void cheque and having the residents sign a form granting approval for the rent to be withdrawn by you is a great way to eliminate unnecessary trips. In addition, a cheque takes a couple days to clear, where you don’t know if they have the funds or not, while a direct withdrawal clears the funds right away if there is enough in the account.

You are also in control of when the rent is withdrawn, so late payments or delays in collection are eliminated. This process is part of a veteran manager’s toolbox.

Not studying local tenant laws

This one sounds easy, but I didn’t do a thorough job of reviewing them. Therefore when I was recruiting new residents I didn’t know what standard terms of agreement were for leases. I had a friend send me a lease he used for his property and changed it to reflect my situation. In essence I was using leases but didn’t know the underlying laws governing the agreement.

Perform recruiting as early as possible

In most markets it will take some time to get new residents. You have to post, show the place, and then sign them up. The first person to see the place may not fit your profile. Also, the person may be looking at other places and not select yours after viewing. There is definitely a lag between starting to look for residents and having them signed up that could last for months. I only had 3 weeks after the purchase of my property to get it rented out. Consequently, I was in need of tenants and didn’t go through a thorough screening because I just wanted to start getting paid. BAD IDEA. In the future I will wait as long as needed to get great residents.

Wear and tear resulting from sloppy residents can cause floors, kitchens, and bathrooms to age faster. Repair bills go up by a few hundred dollars to a few thousand dollars. Having to put in a new floor because of wear and tear, and the headache of dealing with resident problems consume time and energy which also have a value.

Bad residents also affect your ability to rent it out the next time, because when you’re taking them through they’ll likely be turned off right away. This impacts the amount of rent you can charge and the ease with which you can find residents. These are longer term consequences of bringing in bad residents.

Not knowing what a good resident is

A good resident is neat, pays in full and on time, and is respectful of you and your property. Most people fit into this category, so you are really seeking to screen out a small percentage of the population.

Performing a credit check will give you an idea of their likelihood to pay in full and on time. This should be done before bringing any resident in.

The others are tougher to discern. One trick is to look in the person’s car quickly as they pull up. Their car will give some reflection of the level of cleanliness they like to keep. References will also provide an important insight into the person you will be dealing with. Personal, business, and previous landlords can help out in this regard.

Finding out if they will be respectful of you and your property can be ascertained from conversations, body language, and ability to deliver on completing applications. If they are straightforward to deal with such as filling out the application promptly and being pleasant in all dealings, you will likely be fine. If the person is putting you through the ringer to get a $10 cut on the rent or some special request this is a warning sign.

Cleanliness is critical at all times

Pick up all trash, rubbish, and eyesores around the property. The first thing that stands out to a potential resident or neighbors is rubbish lying around the exterior of the property. If you want new residents that are neat and tidy, you have to start with it in great shape to set the standard.

Lack of Mentors

I mentioned this one in my top amateur investing mistakes but it applies here as well. Being a landlord without knowing anyone that has experience doing it is taking on unnecessary risk. At the very least you should be able to find a discussion forum where you can post your questions. Make sure that people responding will own properties near where yours is. Jeffrey Taylor’s www.MrLandlord.com could start you off.

This is a tiny glimpse into the veteran landlord’s toolbox. I am working to continuously improve my skills realizing that I’ll make a lot of mistakes, but that they won’t be repeated. As I buy bigger and bigger properties you need a higher level of management skill to be successful. Take the opportunity to hone your skills on smaller properties. Put in your work, energy, and commitment then tell us about your experiences!