Trust and Verify

I walk through each of our properties at least twice a year. Some property managers, especially when managing C class units, check as often as 4 times a year. They have vendors on site such a gardeners who have eyes on the property and report suspicious activities. Real estate is an amazing asset to invest in, but with that much value tied into a property, it is wise to keep an eye on it and make sure it is in good health. There are a lot of ways to hack a property to increase income, but that is built upon a foundation of good tenants and owner / manager diligence.

FYI, this article was written for the Zillow investor blog. Check them out for interesting tips and answers to timely real estate investing topics.

Identify Problem Tenants Early

I stepped into our newly remodeled 3 bedroom beach cottage a year ago, last April. I had rented to a charming couple who worked for the CDC and a good friend of theirs who was an active stock broker. Great income and strong rental history. In only 9 months the home had become filthy. Disappointing but fixable. Then I walked into the oversized 500 sq. ft. garage. One wall was taken up by a giant wall of batteries. Grow lights hung from the rafters and a giant venting system went up into my roof. Even though they had hidden their horticultural experiment in the 24hrs since I had requested access, the heavy smell of Marijuana lingered. I pulled out my iPhone and took a lot of photos.

The good news was that I caught it early. There had been no modifications on my last walk through 4 months earlier. There was no moisture damage or mold issues. For those of you who are not familiar with the problems a grow house can cause, it can completely destroy a building and in the worst case can cause property seizure by the DEA. I thanked the tenants for paying their rent in a timely manner and informed them that they would pay the cost of converting my garage (and attic) back to its original condition as they had violated the lease or the police would be called right then and there. We reached an agreed to end the lease. The total cost of the damage was nearly 4k, much of which was covered by the safety deposit. A quick tip on the moveout, don’t do the walkthrough with the tenant. It creates an inhospitable environment for both parties. Leave that for when they are truly out of the property.

I remember asking a real estate investment buddy with dozens of units if he would share his biggest cost saving tactic. “Get the rotten tenants out before they cost you money”. Premature wear and tear plus damage done by bad tenants was expensive and mostly avoidable.

Catch repairs in their infancy

I have some truly caring and wonderful tenants who never want to bother me. They never call, which most landlords would think is phenomenal. Many problems are easily and cheaply resolved in their infancy, but can grow to gargantuan financial proportions if left untended. I’ve learned with this type of renter to ask them to put together a list of all the issues they know of with the property and visit regularly to keep an eye on the state of affairs.

I walked through a small home last month that we rent to three female students. The house was in great condition and I was thrilled, until I walked out into the back yard. When I walked in, they mentioned that the gutter had come a little loose in the last storm a few months before. I seriously regret not taking a picture. A 30 ft section of heavy metal gutter was bent and hanging off the side of the building at a 45 degree angle. One big storm and that giant piece of shrapnel could have put a hole in my house or the neighbor’s, and possible hurt someone.

On the same day, a walk through at another property turned up a fridge that had frozen over and was beginning to leak. They explained they “didn’t use the freezer, and didn’t want to bother me.” If I hadn’t asked, I might not have discovered the issue and could have ultimately been dealing with water damage in the kitchen.

As it was, the repairs for both issues cost me under $125 and the tenants are truly happy that they have a landlord who cares.

Pay attention to local trends

My parents dabbled and had one rental when I was a lad. They bought in a great neighborhood in Carlsbad, CA back when the military base was running strong. Over time, the neighborhood went down in quality and the type of tenant became worse and worse. We were at a distance, and fairly removed, so my parents didn’t act until far too late. While they were lucky and got out without loosing money, had they acted earlier, they would have earned greater profits and suffered far less from dealing with low rent tenants.

Last month, I walked through one of my properties only to discover that 20ft of fence between our yard and the neighbor went missing. I walked over to ask them for an explanation when I met the new tenants. It was a unique bunch of people, nice enough but not particularly stable. It turns out that the county had somehow acquired the property and decide to turn it into a halfway house. Now why they chose a nice middle class neighborhood is beyond me, but I will be keeping an eye on the situation. It is very likely an exception, but it could be an indicator of a trend within that small area of the community.

Timing

I try to turn my properties over between May and August. I’ve noticed the highest rents and most active demand during summer. As a result, I do my walkthroughs in early spring and late fall. This way, I visit a property a few months after someone moves in. I also tackle seasonal issues, such as heater filters in fall and any special spring landscaping / sprinkler checks for those properties that need it.

In the famous words of Ronald Reagan, “Trust but Verify.” Look for accountable tenants. Make sure that the people who care for your property are holding up their agreement. I’ve learned to accept that each family has its own strengths and weaknesses. We supplement the weaknesses as necessary and if they are causing harm, get them out quickly. Thanks to our precautions, out of many tenants, we have only had one problem and they were ever so nice about it. We rent nice places to nice people.

1 Thought.

  1. Pingback: Getting Started as a Landlord | Pearlman Real Estate Investments

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