09 Nov INVESTORS’ CORNER: Tenants, Toilets, and Trash
When speaking to the uninitiated about the innumerable benefits of investing in real estate, a common response I get is: “well, I don’t want to be running out to unclog a tenant’s toilet at 3am.”
I wonder if they think that I want to? That some masochistic part of me thrives on the phone waking me from a dead sleep, and driving across town to find out precisely which foolish article my tenant has tried to dispose of in entirely the wrong manner.
The truth is, I don’t get those calls. Ever. My tenants do not even have access to a phone number that will wake me up while I’m asleep at night.
There are a couple of ways to accomplish this. The first is to sell properties on lease-option or with owner financing rather than simply renting them. There are many other advantages to these strategies, but because in either case your occupant is a “homeowner in training”, it is no one’s problem but their own if their little boy decides that the toilet is right where his Matchbox Car needs to go in the middle of the night. With these methods, responsibility for repairs is passed on to the occupant.
Think about it- when your toilet overflows, you don’t go calling Wells Fargo and complaining, do you? (Check with your attorney about which repairs state law make you ultimately responsible for, but it never hurts to try to get your tenant to do it willingly).
The other method is simple- hire a good property manager. Let him (or his handyman) take those late night calls. Yes, it costs money to hire one, but a good property manager can be worth his or her weight in gold. Besides, real estate investing is a numbers game- when evaluating a potential investment property, you will look at your probable income (by studying what similar properties nearby rent for), and add up all expense, such as debt servicing, an amount to set aside for both major and minor repairs, vacancy, and yes- property management. If you aren’t going to use lease options or owner financing, and are not possessed of the temperament necessary to manage your own properties and still sleep at night, this is an expense every bit as important as those previously mentioned. If the property’s income cannot “afford” property management, best you either keep looking or decide if the property offers enough additional benefits of ownership to justify paying the negative cashflow out of pocket.
Lou Gimbutis is director of education at the Metrolina Real Estate Investors Association, which provides education, mentoring, and networking for real estate investing in the Charlotte region. He can be contacted at lou@MetrolinaREIA.org. For more information, visit www.MetrolinaREIA.org.