A keystone in management is reduction of the Big-3 expenses: Vacancy, Turnover and Maintenance. Over the years I've observed that tenants tend to remain longer when they've taken an active part in improving the premises in some way. Usually this tenant improvements are restricted to painting and minor repairs of window, screens, doors, etc. But, from time to time it's possible to get tenants involved in major repairs in return for rental credits. Cash starved landlords can become delirious when what might seem an awesome repair job boils own to slightly lower rents over a period of time. It's a form of financing.
I originally encountered this phenomenon during my venturesome years with my apartment house that I mentioned previously. I'd come across a bargain in industrial grade carpeting. The distressed dealer agreed to pre-cut sections to conform to the individual contours of each apartment and the common areas. Now to get it laid. I first put it down in the foyer and hallways. Then I explained to the tenants that I couldn't put it into their quarters until we'd gotten them repainted. That would have to wait until I could afford it. But if they really wanted carpet sooner, all they had to do was to re-paint their apartment units themselves. Of course, I'd furnish the paint.
This worked better than I could have hope for. Not only did I get the entire complex painted with free labor, I was able to get tenants to install paneling where the walls revealed too many imperfections under the new paint. And I even got the carpet installed by giving assurances of no rent raises for a year. When everything was done, something interesting occurred. Tenants began to take pride in their units and in the common areas too.
And since they'd earned stabilized rents for a year, turnover was virtually eliminated. The threat of losing their improved living quarters because of non-payment of rent made my collections a breeze. Everyone was happy with the arrangement – especially me.
Moving right along, the plot thickens. I was able to buy a “fixer upper” at a super discounted price from a small loan company. It needed tons of work, but the assumable loan was only about $13,000 at 6%. Payments were only $145 per month. Advertisements in the newspaper attracted a handy man who'd agree to pay $195 per month for 3 years in return for repairing the sadly damaged property. He replaced the dry wall and plumbing. We gave him some help on electrical repairs in addition to a new water heater. He scraped the first few coats of grime off the floors then he gave up and moved.
We ran a new ad in the paper offering to rent the now slightly improved house for $225 for the next 3 years and found a new tenant who finished the job. Now we've got a nice little rental near the school that's worth about $38,000 and which rents for $400 a month. I don't even want to discuss the yield on that little deal. It's mind boggling.
