If you have been reading my posts, it may seem like I am all over the board. One day I am talking about mortgages, the next I am talking about agents, and today I am talking about landlords. The coherent theme behind all of these things is smart real estate investing. Commercial investors must have a strong skill set across areas because they represent the cog that brings different real estate functions together. Today, I want to talk about one of the most value jobs a residential (commercial and non-commercial) investor will have to do. This job is that of being a landlord.
People have typically had one of two experiences with landlords. First, they may have rented an apartment growing up, in college, after college, etc. Second, they may have seen one of the many comical landlords on television (Mr. Roper from Three’s Company for example). Regardless of where your experience comes from, being a landlord is never as easy (or as comical) as it appears. This is especially important for the first-time investor, who has no idea what to expect from tenants.
First and most importantly, new landlords must understand that people will not treat their property like it is their own. This is true with just about anything that is rented. Everyone remembers how much more recklessly they drove their rental cars or how poorly they treat their hotel rooms. It’s just a simple fact of life; ownership creates a sense of pride, while rentership (not really a word, but you get the point) creates a sense of carelessness.
Once that very important lesson has been absorbed, investors should go into the process well informed. This means finding every book, article, blog, and person you can to help you gain a better understanding of what it really means to be a landlord. Don’t just listen to the people that say it’s easy. Look for the horror stories. Watch one of the many day time Judge Shows. Ask yourself if you could handle the worst of the worst. Once you feel fully informed, you are ready to begin the process of becoming a landlord.
The process starts with the house. In my home blog, I have written a piece (Buying a House vs. a Home) that should help you understand how to provide a house that can be transitioned into a home by your future renters. It is the landlord’s job to provide a blank canvas for future renters to transform to their liking. This gives renter more of a sense of ownership because they become more attached as they add custom window treatments, paint, pictures, and other personal touches. In areas where renters tend to stay longer, more design latitude is recommended. While in areas like college towns where renters tend to rotate in and out very quickly, it is better to have a suite of options they can choose from.
Next, landlords must be aware of the legal stuff. I don’t want to go into great detail here because there are many laws that vary by state and city on credit checks, questionnaires and leases. Bottom line, know the laws in your state and city. Most states and cities have websites that provide landlord and tenant rights. The “I didn’t know defense” does not work well in court, trust me. Many courts automatically favor the tenant in most cases because they assume the landlord to be more business savvy.
Finally, the most important advice I can give perspective landlords is to treat the tenant well. Regardless of whether the tenant is a Section 8 renter paying $10 a month or on Park Ave. paying $4,000 a month, every tenant should be treated with the utmost respect. Tenants that feel like their landlord truly cares about their well being are more likely to pay rent on time and to treat your property better. Fix everything right away. Stop in just to say hello. Ask about their family. The better relationship a landlord can build with renters, the better they will take care of the building.
The temptation is always there to defer maintenance or to take a hard line on everything. This only serves to remind the tenant that they are not owners. Additionally, if you treat your property poorly, how can you expect the tenants to treat it any better? I have had great success in the worst neighborhoods because of this one piece of advice. Properties with great landlords always have lower vacancy and a better payment schedule. Remember, 95% of the people you rent to will be great. Don’t let the 5% minority dictate how you treat everyone.
mistergin says:
Michael,
It’s actually kind of ironic you posted this today… I’ve been in Real Estate for about 4 years now in one form or another. Everything from new homes, residential, and timeshare – to the support system of working inspections, appraisals, etc. I actually even wrote a 5 page blog post (I plug the BH blog in page 5 =p) for folks thinking about getting into real estate. Much like you did here..
This comment especially rung true for me. On the support side, I helped manage an all-in-one home warranty/inspection/appraisal shop (which I do NOT recommend to others, but will be polite enough not to name). Many of our clients were investors as this was about a year and a half ago when the market was still blowing up:
I can’t count how many people we got calls from, when they moved into a property one of our clients purchased. With faulty a/c work or something that would null a warranty claim on such an item in the inspection clearly laid out for the investor – they would rather save the couple hundred and just *hope* that nothing would happen.
The renters were furious because when summer hit and the a/c units started malfunctioning, all we could do was say that unfortunately it was not covered in the warranty. The agent got the inspection back, knew that such an issue would void the warranty, but as they were in the process of buying/selling several houses, they never thought long term.
I went above & beyond as much as I could, but these were cases where we basically told the agent that with the purchase of a warranty at a couple hundred – they could save what would most probably be a repair costing double that.
So the renters would go back and forth with the agent, and then back and forth with us, and in the end, the agent/investor wound up mad and angry at US when he turned down sound advice. Knowing they were at fault, they’d continue to work with us, but you could tell that those times had soured their experience with tenants.
Most folks that rent all their life don’t usually make the distinction between apartment life and rental home life. In an apartment, you have a company who is obligated and usually supplied well enough to handle such problems, which can be escalated if you make enough fuss.
With home rentals, you just have to hope that the investor:
A) Gives a darn
B) Isn’t in another state at the time
As someone who’s looking to get into investing next, this is worth its weight in gold:
Ain’t that the truth. We say time and time again that the profit is made on the PURCHASE, do we not? Why shouldn’t we factor in the fact that this will be a long term rental and that repairs needing to be made to keep future fusses from coming up, should be counted in the tally?
Heh, expect a trackback now I guess, you got me riled up and I’m running out of space! 🙂
February 5, 2007 — 2:45 pm
Av8tor says:
I’m a first time landlord. My tenat called me and wanted me to clear a bathtub drain for the 3rd time after I told her to use a strainer I provided. On the same call she said she had roach baits and mouse traps she put down and I needed to to get the dead mouse out the house and change the roach baits and if that wasn’t enough she wanted me to pay her for the baits and mouse traps. If I had only known renting a house means for me to empty traps I would have never ventured into it!
January 28, 2008 — 3:38 pm
Carrie says:
question?
I’m considering taking a home I have through FHA and turning it into apartments and also converting an unused garage into a cottage for my daughter and me. First of all, is this still considered owner occpied as FHA requires for atleast one year since I will still be on the property?
Also, how dou you separate the utiities for each apartment in the house? Can the home also stay on the same septic since the square footage remains the same? And can I also build more cottages and where do I get info. on septic requrements for that? I know a new dwelling must have a septic permit in order get new electric service.
I had considered all utilities paid apartments since I free gas for the house, but that could be rather pricey and I would need to figure out a way to separately heat and cool each apt. on it’s own.
Sure sounds like a lot of work, but also very worthwhile.
I live in Ohio if that helps.
Thanks for any advice you can offer.
September 15, 2008 — 12:02 pm
Carrie says:
I forgot to mention I was considering paying water and trash, but electric is getting expensive. Any suggestions?
Thanks in advance!
September 15, 2008 — 12:04 pm