Investing in single or multi-family homes and dealing with tenants isn’t for everyone. For those with the intestinal fortitude to have tenants, now is a terrific time to invest in rental property. Loan rates are low and the deals are out there. For the first time in a long time, it’s actually possible to buy property with 20% to 30% down and get a cash flow right away. In the past, of course, SoCal real estate was so pricey that the best investors could hope for was appreciation of the property. Now, even in SoCal it’s possible to get a cash flow deal and make some passive income right away.
A few years ago, I invested in two fourplexes in San Antonio, Texas which are now supplying a tidy cash flow every month. Attaining that income wasn’t easy. First, I had to renovate the properties, both built in 1940 and on adjoining lots. That took many flights from L.A. and about 6 months for both. My procedure was one at a time, so after about 3 months I had one building finished and full of tenants and then I started on the second building which took another few months.
Along the way, I have learned quite a lot about managing property and about managing tenants. Watching my clients who owned rental property also taught me a lot. Here’s some of what I learned about tenants.
- Know the rental laws. This is elemental and vital. If you own a rent -controlled property, make sure you understand the ins and outs and follow them to the letter.
- Have prospective tenants fill out a detailed application and pay at least $30 for a credit check. Paying for the application will screen out the insolvent and insincere applicants.
- Thoroughly vet your prospective tenants-run a credit check, call the last rental and verify the income. Do not rely on your “gut feeling” as many nice guys make terrible tenants.
- Make sure prospective tenants understand and agree to your rental terms before accepting them. Deal with some issues upfront: do you allow pets, do the tenants pay utilities, how many cars can they park, how long is the lease, etc.
- Only “hold” an apartment for a tenant after you have a good deposit in the bank.
- Make sure the empty apartment is pristine before turning it over to the new tenant. Finding a dirty oven or a leaky faucet or a malfunctioning A/C gives tenants the wrong impression. Make sure everything is shipshape.
- Make sure tenants have signed the lease and given you evidence of putting the utilities into their names before you give them the keys.
- Fix or repair items tenants complain about immediately. If you expect good tenants, you have to be a good landlord. This includes dealing with other tenants who may make noise, not care properly for pets or park in the wrong place.
- Treat your rental like a business. Never forget you have the rental to make money, not to make friends.
- Make it crystal clear to tenants that the rent must be paid on time or late fees accrue and/or eviction begins right away. This is where many landlords fail. Allowing tenants to pay late or not at all simply creates a crushing load of debt they will never be able to pay. Make sure tenants understand you need your rents to stay in business.
- If tenants are late paying the rent, immediately find out why and when you can expect to be paid. Immediately send the tenant with an inadequate explanation, a 3-day notice to pay rent or quit. If the tenant does not pay, start eviction without delay. That way if the excuse is invalid and you do not get the rent, you will get the tenant out in the shortest possible time. Do not be a nice guy about this.
- Keep the property in top condition. This will guarantee you a constant flow of good tenants and a good sale price should you ever decide to sell.