The Landlord's Guide to Managing Residential Rental Property
Landlords Are Busy People
If you are a landlord, you know this better than anyone else. Most landlords aren’t full time. They have have jobs, families, hobbies and a plethora of other high priorities in their life that all rank above their landlord duties.
Even with everything going on in their busy lives, they are still willing to answer the phone on nights and weekends to make sure their tenants are taken care of.
70-80% of all residential rental properties in Southern California are managed by the owner.
What that means is that most landlords either don’t trust or don’t see the need for a property manager. They are managing their rental property just fine on their own.
So what do good property managers do and how can they help maximize the return on rental property investments? What resources and skills do property managers possess that investors or homeowner’s can take advantage of?
This comprehensive guide designed for landlords managing residential rental property seeks to answer those questions and act as a resource for the do it yourself landlord.
Here is everything you ever wanted to know about property management and the job of landlords.
What Do Property Managers Do?
This is a very common misconception that most people have about property managers, and that’s probably due to the rather terrible reputation that property managers have in the real estate market. Lack of communication, slow response time and poor management practices are known qualities of most property management companies.
Good property managers, however, do a lot more than collect rent and take forever to return your phone calls.
Some services that all fall under property management are:
- Rent Collection
- Tenant Relations
- Property Marketing
- Applicant Screening
- Accounting and Reporting
- Ongoing Inspections
- Maintenance Coordination
- Tenant Turnover and Evictions
Property managers are licensed real estate professionals that perform all of these tasks while ensuring compliance with real estate laws. Many can give investment advice to owners looking to expand their portfolio and since they are licensed, they can act as the seller’s agent in any real estate transaction.
Steve Shwetz, Managing Broker for Mesa Properties, explains 15 reasons to hire a property manager in the video below.
Let’s dive a little bit deeper into the exact process that Mesa Properties uses to manage each and every one of our rental homes.
Getting Your Property Ready to Rent
Residential rental property can range from a single family residence on a nice quiet cul-de-sac to a multi-unit complex with on-site management and maintenance in a downtown urban setting.
Regardless of the type of property you own, your most important variable (after location) is the condition and quality of your rental property. Yes, curb appeal does matter, even if the property is occupied by a renter. It matters to both the prospective tenant and the local community in the immediate area.
A real estate investor who understands this will be willing to invest the money needed to maximize the potential rent and attract the best possible long term tenant. A good tenant being defined as one who takes care of the property and pays the rent in full, on time, every month. Very few tenants who fit this ideal description are willing to rent a property that is obviously out of date with lots of deferred maintenance.
This is not to say that you have to have the latest stainless steel, bluetooth enabled appliances and quartz countertops, but it does mean that the avocado green dishwasher that doesn’t always rinse well and the 10 year old carpet should probably be replaced. Beyond maximizing the aesthetic condition of the property, safety and habitability should also be a primary concern for a property owner.
Should you paint every time a tenant moves out?
Although the paint does not need to be new, many multi-unit owners choose to repaint their rental units every time a tenant moves out. Sometimes you can get by with using touch up paint on the entire wall that needs touch up. Trying to use touch up paint mid-wall in specific spots often ends in failure. The new paint, even if it was from the same container that was originally used to paint the wall, will have a slightly different sheen and will look worse than the original blemish you were trying to cover up.
Regardless of the condition of the paint, there should be no existing nail holes in the walls when a tenant moves into a property. Trying to unwind which nail holes were pre-existing and which ones were done by the current tenant is a fool’s errand and you end up being unable to charge for any of the damage to the walls caused by the nail holes
At Mesa Properties, we have developed a standard rent ready inspection report that all of our property managers use to inspect the above list of items and much more. If you are interested in getting a copy, contact one our property managers today or click here to request one.
In the video below, Steve discusses some steps to take to get your property ready to rent.
Pricing Your Rental Property
This critical step will determine how long your property is on the market and the quality of tenants you attract.
Once your property is “rent ready,” you need to determine how much to set the rent for. With online sites like Zillow providing their “Rent Zestimate,” it’s a fairly straightforward process to determine the market value of your rental property.
However, you need to be aware of the following exceptions when using a quick and easy online estimate:
- The description on the online site does not match your actual property description.
Maybe the online site sees your property as a 3 bedroom 1.5 bath home, but it is actually a 4 bedroom 1.5 bath home. Maybe your rental has a pool and the internet site doesn’t show that in their description.
- Properties in your immediate area (within ¼ mile radius) are very different from your property but match your property in terms of square footage, bedrooms and bathrooms.
This is particularly common if your rental is part of a new infill development project and is surrounded by significantly older homes. Those homes could potentially rent for less and in turn, push down the rental value of your property.
- There haven’t been any recent rentals in your immediate area.
All of these internet sites use data mining algorithms to determine your property’s rental value, so without recent comparable listings, the algorithm doesn’t take into account recent increases or decreases in rents and could be using old data.
Because of the variabilities mentioned above, you should do your own market analysis and see what is currently available in your area for properties that most closely match your rental listing.
Do this on any of the many other websites including rentals.com, Trulia or realtor.com. You can also leave it to the professionals and search for local property management companies in your area that will usually provide a free market analysis!
Once you determine the market value of your rental property you still need to decide at what price to set the rent. Many owners don’t spend enough time considering the price they are willing to accept on their investment property.
There are three schools of thought on pricing a rental property:
1. Price the property above the market price
- This is the worst way to price a rental property. Sometimes an owner decides to ignore the market and make the decision based on their out of pocket costs. If the monthly mortgage, taxes, insurance and management costs are $2,850.00 then I need to charge $2,850.00 plus what I want to net on the property above my costs….Never mind the property’s market value is $2,400.00 per month. As foolish as this sounds, some owners actually think this way. Their properties typically sit on the market for a very long time, costing the owner more money in the long run then if they simply priced their rental property at or below the market. This price methodology is sometime referred to as “death by a thousand cuts.”
- The other risk in pricing the property above the market is that it actually attracts weaker, not stronger, tenants. Tenant’s with high FICOs and good jobs are in their current position because they made good and prudent buying decisions in the past. Any owner who thinks these savvy potential applicants will rent their property above market will usually be disappointed. The weaker applicant, who often times has already been turned down on other properties and is now desperate to find a place to live, is much more willing to pay over market rent for a home.
- Remember the three basic needs for people are food, clothing and shelter. When any one of these three basic needs are threatened, people often get desperate. They are more prone to lie on an application and apply for properties that are overpriced because they don’t have any other options. The owner who accepts this type of tenant can look forward to late rent, unpaid fees and eventually a potential eviction. And when they do finally get possession of the property, it will probably require expensive and extensive repairs that need to be done before the property can be rented again.
2. Price the property at the market price.
- In a strong rental market, this is an acceptable strategy. You should expect lots of requests for showings and lots of interest from people wanting to submit an application. If you begin marketing the property and find the activity is not at the level you expected, go back and reevaluate your market analysis to make sure you are priced at the market. Be sure to check currently active listings that match or closely match your property’s description. Sometimes, another landlord will list a property below market to get a quick lease and you will need to wait until that listing is filled if you are committed to leasing the property at the market price.
3. Price the property below the market price.
- This is actually the savviest way to price the property. Pricing your property even $50-$75 below market ensures that everyone serious about finding a place to live will be looking at your listing. You will get even more applicants that you will not qualify, but you will also get the strongest applicants currently in the market for a rental property looking and hopefully submitting an application to rent your property.
In the video below, Steve discusses the best way to price your rental property.
Marketing Your Rental Property
Gone are the days of having to call your local newspaper to list your rental property for rent. The Internet has once again disrupted another industry and changed the way we do business. Various listing sites and Craigslist have become the go to destinations for prospective tenants looking for a place to rent.
With new technology comes new challenges and threats that landlords need to be aware of and guard against. The most common threat often comes from people sitting in some Internet cafe on another continent trying to make a quick buck at your expense.
The scam usually goes like this:
The criminal downloads your pictures and the description of the property and then uploads them to craigslist. They drop the rent 25%-50% below the market and weave the story that they are the owners of the property and have had to leave the country suddenly for work.
Since they are out of the country, they will get the prospective tenant to wire them the security deposit and first month’s rent. Once the money is sent, they go dark. Since it’s a wire transfer transfer and the bank account is offshore, the scam is done. It is not uncommon to do this two or three times on the same property before anyone figures it out.
The best way to guard against this scam is to watermark every picture you take and post of the property. Put either your phone number or company website as the watermark. There are several free websites, such as Water Marquee, that you can use to do this. This single simple step will make you virtually immune to having your home targeted for this scam as the criminal will simply keep looking for another home that has pictures that are not watermarked.
Yard signs are also quickly becoming a thing of the past. Yes, some people do still see the signs and will make a phone call because of the sign. This can result in finding some great tenants, but criminals also see those signs! Yard signs have become little more than advertisements for an empty home, saying “Please rob me!” This can put you in danger of being targeted for one of the following scams:
They will break into the house, open up the garage door and back a truck in and load it up with whatever they can get out of your home quickly. You then show up for a showing and find your home has been robbed.
The False Move-In
This is the worst case scenario. Someone will break in and move themselves into your property overnight. They will then get the water, gas and electricity turned on in their own name and then create a fake lease, complete with your forged signature and wait for you or the cops to arrive. Once the police arrive they show the signed lease and utility bill to the officer. The officer will then inform you that they are not trespassing but are tenants and the officer is not qualified to unwind the situation. You then get to file eviction paperwork and wait 45-90 days for an unlawful detainer to be issued and the sheriff’s deputy to arrive and give you back possession of your own property.
Because of these two types of scams, and the high visibility the Internet has given to rental listings, it is our opinion that you should not place a yard sign on your property.
As you do your showings it is helpful to provide a 1 page marketing flyer with your contact information on it and how the prospective tenant can apply for the property. You should also have your key requirements listed to qualify to rent the property and the steps in the process between applying for the rental and actually moving in clearly spelled out. This helps the prospective tenant understand your process and it helps you defend yourself should the prospective tenant feel they were treated unfairly and then decide to file a claim with Fair Housing accusing you of discrimination.
In the video below, Steve discusses the #1 scam threatening landlords when marketing rental property online.
Screening and Qualifying Tenants
If a company or individual owner ever needed to have a “Secret Sauce” this would be it! No job is more important in the entire rental process than screening and selecting tenants. The ultimate goal of any tenant selection is finding a tenant who you can be as assured as possible will pay the rent in full on time every month and take care of your property. The cherry on top for the buy and hold investor is finding a tenant that wants to stay for a very long time.
Before any discussion can begin on how to screen and qualify a tenant for a rental property, it must be understood that there are specific Fair Housing guidelines that any owner or property management company must adhere to in screening and selecting tenants. There are a full list of Federal Laws you must comply with anytime you rent out residential property. Take the time to familiarize yourself with these laws and live by them!
Many companies and individual landlords will use an arbitrary cutoff on a person’s FICO score to make a placement decision. This is not the best way to screen tenants. The FICO does not tell the whole story on a person’s ability to pay the rent and take care of the property.
The most common example of a low FICO applicant who is a good risk is a person who just went through a divorce with a financially irresponsible spouse but they were the main source of income in the household, they have 20+ years on the job and make well over three times the rent. This applicant, excluding other issues, could be a great placement because of their job.
Ultimately, you want to find an applicant that has something to lose by not paying the rent. It could be good FICO or other assets. In the worst case scenario, if you had to go after a tenant that stiffed you, had an already low FICO going into the lease but had over 20 years on the job, you can always get a judgement against that past tenant and then garnish their wages. They typically won’t quit their job just to avoid paying you off on a judgement.
In the words of Ronald Reagan you need to “trust but verify.” Mesa Properties processes literally hundreds of applications every month and we find tenant dishonesty the biggest obstacle to getting through all those applications. The deceit ranges from phony pay stubs to having their buddy give the landlord verification.
Steve discusses his philosophy and proven methods in excellent tenant screening and selection in the video below.
Steve and Verenice also talk more specifically about some tips and tricks they have learned when screening applicants.
Creating a Good Lease
If you are using a property manager or even a Realtor to lease your property, they should have access to good, well written leases. You can also get a good lease from various landlord associations that specialize in your property type. You should avoid buying a very basic, generic lease, especially if it doesn’t include all the specifics that your State may require.
Here are some important points to include in your California lease:
- Lead Based Paint: If your property was built before 1978 you also have to make sure you inform your tenants of that fact and that there may be lead paint on the property. You must also provide all your tenants with the government booklet “Protecting Your Family From Lead” along with the signed lease. If you fail to disclose this information and do not provide the brochure, the tenant can cancel the lease at anytime without penalty since you failed to disclose the possibility of lead paint on the property.
- Late Fees: Some owners want to charge a 10% or higher late fee and have more fees for every additional day the rent is late. The courts have ruled that this unreasonable and you will not be able to collect these fees if your tenant challenges you in court. The courts will generally allow a late fee between 5%-6% of the collected rent with no daily late fee.
- Grace Period: Most landlords will put a 3-5 day grace period into their leases. While this is fine if you like getting paid 3-5 days after the rent is due, it is usually unnecessary if you have a good tenant. If you set expectations up front that the rent is due on the 1st of every month and late on the 2nd and then enforce the late fee when this schedule is missed, you will generally get your rent on the 1st. Some owners will make an exception if a tenant gets paid on the 2nd or 3rd of every month and then consistently pays their rent the next day.A word of caution on making this exception is do not let the rent get paid later than the modified due date without paying a late fee. If a tenant is tight on funds every month and is in the mode of paying the squeaky wheels first and you are an easy going landlord, you put yourself into the easy going, get paid late column of this tenant’s accounting system. You want to make sure your tenants understand that you are a good, responsive landlord and in exchange for that, you expect the rent to be paid in full, on time, every month, period.
- Security Deposit to not be used for last month’s rent.
- No Smoking on the property.
- Where they can and cannot park.
- Any maintenance expectations.
- Restrictions on pets.
- Neighborhood conditions are unknown.
- Current property condition.
- All HOA Rules & Regulations.
- No subletting.
- Megan’s Law Disclosure.
- Joint and individual obligations of tenants.
- Tenant’s obligation on vacating the premises.
- What happens if they break the lease.
- What if they damage the property.
- What if they have to move out because of a problem with the property.
- A mediation clause.
- How tenant payments are applied to tenant charges.
- Tenant responsibility to prevent mold.
- Tenant responsibility to guard against bed bugs.
- No oral agreements exist outside the lease.
A lease is a legally binding contract and if it is not comprehensive and well written to protect the property owner’s substantial interests, it exposes the property owner to both potential liability and an inability to charge the tenant for certain items or terms of the lease if they are not included in the lease.
In the video below, Steve discusses the necessity for a good lease as well as what should be included.
The Pre-Move In Inspection and Move In
There is one thing that can always be said about any property inspection: “A picture is worth a thousand words.” In the age of the smartphone, there is no reason not to have pictures and even video of every major area of your rental property.
Any less that perfect items can be easily described but they must be documented with pictures. This inspection becomes the basis for the move out inspection that then determines what you can charge for damages and what you have to write off as normal wear and tear.
Without pictures it becomes a finger pointing match in Small Claims Court.
We once had a tenant who had a dog that literally urinated in every room with carpet in the house and the entire house smelled like dog urine. The problem was that the carpet looked fine since they had it cleaned and smell doesn’t translate in a picture or video. But a black light and video walk through will clearly display the evidence of dog urine in carpet.
Taking a 60 second video showing all the dog or cat urine in a home with a black light and then sending that video to the past tenant will typically shut down any protests about how the deposit disposition was spent on replacing the carpet.
This is one simple example of how documenting the property prior to move in is critical.
Once the inspection is done and well documented, it’s time to move the tenant into the property.
The process of moving a tenant into your rental property should take no more than 60-90 minutes if you have done your job prior to the day the tenant takes possession of the property. We suggest doing the pre-move in inspection prior to move in day so you can take your time and you don’t have the new resident following you around nitpicking the house.
If you use an iPad for your inspections, you can review it with the tenant and make any additions they call out during the move in process. You should have them sign the the move in inspection and then mail it to them.
Give them a finite period, such as 7-10 days, to make any additional notes on the move in inspection in case anything gets missed on the big day. If they don’t make any changes, you have their signature on the document stating that they agree with the contents of the move in inspection report as it stands.
Always collect the funds via cashiers check or money order if you are collecting them on the day you are giving possession to the tenant.
Be careful not to accept any funds via ACH or regular check within 7-10 days of the tenant moving in, as those payments can sometimes take a very long time to bounce. There is nothing worse than moving a tenant into a property and immediately having a tenant behind in rent!
Be prepared to walk the tenant through the house explaining all the main systems. They need to know how the thermostat works, how to shut off the gas and water in an emergency and what to do if their garage door won’t open. Spending a little time on the front end will go a long way to both establish a good working relationship with the tenant and hopefully save you from having to deal with unnecessary service calls during their tenancy.
Remember, once you turn over possession to the tenant it is legally their property from a possession standpoint. You may still own it, but you can no longer access it as you did when it was vacant. Do not use a spare key or worse just walk into the home. You need to get verbal consent to enter the home or post a 24-hour notice of entry before doing anything inside the property as long as the tenant has possession.
In the video below, Steve discusses how to perform a great pre-move in inspection.
The First 30 Days of Tenancy And Beyond
Expect to have a fair amount of interaction with the tenant in the first 30-days of the tenancy. Expect a higher than normal amount of service requests, especially if the house sat vacant for an extended period of time before the tenant moved in.
Plumbing leaks, HVAC not working properly and even electrical issues sometimes don’t come up until someone is living in and actively using all the systems in a property.
If a tenant moves in on a date other than the first of the month make sure they understand when the next month rent payment is due and what the amount is. Some owners will require tenants to pay a full months rent to move in and then prorate the 2nd month. This can be confusing for the tenant so you should remind the tenant of this policy both at the lease signing, when you accept the full deposit and when they move in.
Once things quiet down a bit, its important to maintain a great relationship with your tenants.
In fact, the goal of any landlord or property manager should be to have a good relationship with their tenants. Anytime a relationship turns adversarial, it makes getting things done a lot more difficult. This is not to say that you should become a softie when it comes to late rent payments.
If your lease states the rent is to be paid on the first then you should expect the rent to be paid on or before the first. If the rent is not paid then the tenant should expect to receive a 3-Day Notice to Pay Rent or Quit. A landlord or property manager should always be fair, but firm.
On the other side of the landlord tenant relationship, you should be responsive to all reasonable requests for repairs, especially if they are not caused by tenant abuse or neglect.
If the heater goes out during a cold spell and your HVAC guy says you need a new heating system you need to bite the bullet, open your wallet, and get the heater replaced. Not next month or next week like you might do if it was your own home but ASAP.
It’s not a tenant’s concern that it’s a costly repair. For some tenants, that is the exact reason they are not owners themselves. They don’t want to be burdened with unplanned, costly repairs. You have agreed to stand in the gap and fix this type of stuff via your agreement to lease the property.
If you have a hard time confronting people for things they contractually committed to do like pay rent and take care of your property, you should consider hiring a competent property manager who will do the necessary hard work to make sure your best interests are protected.
The Periodic Inspection
Make sure the tenant is abiding by the terms of the rental agreement and taking care of the property.
Periodic interior inspections are a vital part of managing your investment property. A landlord should view any tenant’s resistance to this type of inspection with suspicion and be aware that the tenant may not be abiding by all the terms of the lease or possibly worse.
The most common violations that occur in single family properties are additional pets and people not listed on the lease.
These types of violations should not be tolerated and if discovered should be dealt with firmly and quickly. An initial face to face conversation is best, but if you think you will have future problems around the same issues, you should serve the tenant with a “Notice to Cure Covenant or Quit” notice. This is a formal document that informs the tenant in writing that they are in violation of the lease agreement and they need to come into compliance with the terms of the lease.
If additional people are living in the property and you are not opposed to having them continue their residency, they should go through the entire rental application process including a credit and background check. If they would not qualify to rent one of your properties when it is vacant, they should not be allowed to move in as an add on tenant midway through an existing lease.
Like any other inspection, the periodic inspection should be documented with pictures and notes. You should check all entry points for water including the water heater and all electrical outlets. Any signs of mold or water leaks should be fixed as soon as possible regardless of who caused the leaks. The same is true for any habitability issues found during the inspection. This is also a good time to make sure the tenant is changing the HVAC filter and maintaining any other items they agreed to maintain in the lease agreement.
Raising The Rent
Assuming you signed a 1-year lease agreement and you would like the tenant to continue renting your property, decide if you want to have the tenant sign another 1- year lease or simply let the lease expire and go to a month-to-month term. Your original lease should specify if the the lease will convert to a month-to-month tenancy. Legally, as long as the tenant continues paying you rent and you continue to accept the rent, you have a month-to-month tenancy.
If the tenant has been a good tenant, paying the rent on time, in full every month and taking care of the property, you should evaluate the local rental market and decide if you want to give the tenant a rent increase. Be sure you abide by any rent control laws in your area as you look at increasing the rent.
Make sure you factor into your decision the alternative to the tenant not accepting your rent increase and what a vacancy will cost you in the long run. To minimize the chances of your good tenant balking at your suggested rent increase, you should always keep your rent below the market rent in an increasing rental market. This way if the tenant decides to shop around and see if they can find a better deal, you want them to see that staying put is both the easiest and financially wisest thing they can do given the current market conditions.
In the video below, Steve explains why he is very careful about raising the rent every chance he gets.
Whether its the end of the lease or considering an eviction, it’s important to know when it’s time to end the relationship.
Maybe your 1-year lease is in month 11th and you do not want to sign another lease with this tenant. Complaints of noise from the neighbors, lease violations discussed earlier or maybe a friend or family member that wants to rent the property are all acceptable reasons to ask a tenant to vacate at the end of a lease.
In fact, you don’t need to have a reason and you don’t need to give a reason for not renewing a lease. You and the tenant entered into an agreement for a 12-month lease, the time has passed and the agreement is done. 30-days prior to the lease expiration, you should properly serve the tenant a notice of termination of tenancy.
If the tenant has been in the property for more than 1-year you will serve a notice giving the tenant 60-days to vacate the property.
Your lease should clearly state and the tenant should be reminded again in writing that the security deposit cannot be used to pay the last months rent. You should also serve your tenant with a right to pre-move out inspection usually 7-10 days before they vacate the property.This pre-move out inspection gives them an opportunity before they move out to remedy any damages that would be above normal wear and tear.
When you regain possession of the property, a final move out inspection with pictures should be done immediately. This move out inspection report should be closely compared to the original move-in inspection report and is the basis for all appropriate deductions from the tenant’s security deposit.
If you are considering going through an eviction, you will need to start with a 3 Day Notice To Pay Rent Or Quit.
In the video below, Steve explains how he knows when it’s time to say goodbye.
Deducting From a Tenant's Deposit
In California, you have 21 days from when you regain possession of the property to give the tenant a full accounting of all expenses that resulted in deductions to their security deposit. Charges need to be reasonable, documented with receipts and any vendors used need to provide their contact information. All of this information needs to be provided to the tenant along with the full accounting for the repairs and deductions to the security deposit.
If you do not provide the deposit disposition accounting and any monies owed to the tenant within the 21-day deposit disposition window, you will owe the tenant a full refund of the security deposit regardless of your justifiable expenses, no questions asked. If you refuse and the tenant sues you in small claims, you could be forced to pay your past tenant the full security deposit and up to 3 times the original security deposit and reimburse them for their court costs.
A commonly missed deduction is for water and trash. Be sure to call both the local sanitation company and the local water company to see if the tenant has an outstanding balance because these charges do not follow the tenant like an electric or gas bill. Water and trash bills always stay with the property. You cannot get either service turned on in your own name or another tenant’s name without first paying off the outstanding balance from the previous tenant. It is very frustrating to do a deposit disposition and issue even a partial refund to a past tenant only to find out later that you have to come out of pocket to pay off the water and trash bill left outstanding courtesy of that same past tenant.
Remember, most tenants are very familiar with the 21-day disposition requirement so this is a deadline you don’t want to miss. It is not uncommon for a tenant to move out and purposely not contact a property owner to check the status of the security deposit until after the 21 day deposit disposition period. Manage to this date and document when you mail the deposit to the tenant. Even if they don’t provide a forwarding address, mail the disposition accounting and any monies to the last known address which is your rental property. If the envelope is returned, keep a copy of it as proof that you made a good faith effort to stay within the 21-day period of the deposit disposition.
In the video below, Steve discusses how to handle a deposit disposition quickly and efficiently.
Closing thoughts on being a landlord
Owning rental property purchased at the right price, properly maintained and properly managed is one of the best investments you can own. If it is paid off or even if you have a mortgage that will sometime be paid off, rental property can be a great source of extra income for years to come. It is also a great hedge against inflation as rents typically go up in an inflationary period yet your carrying costs on the property typically stay fairly fixed. Especially if you have a fixed mortgage that is getting paid off courtesy of your tenant with inflation adjusted rent payments!
Buying a property that generates rent payments that don’t cover your monthly expenses is never a good idea. If you are hoping for inflation and assuming your monthly loss is only temporary, you a putting yourself in a precarious position. You might get lucky and your property’s value and rent rate will increase to make you cash flow positive, or you might get to experience a repeat of the 2007 financial crisis where everything changed and the housing market crashed.
Like any investment, you need to have a margin of safety especially when it come to your cash flow. If financial risk keeps you up at night make sure you don’t buy a property that puts you in the position of being over extended.
The key to being a successful landlord starts with the right property purchased at the right price, properly maintained and occupied by a tenant that has been thoroughly screened and wants to stay for a long as you are willing to rent to them. It’s the imaginary place we call “landlord nirvana” and with a little work and the right market, you too can achieve it!