Learn how you can avoid difficult real estate evictions by not renting to certain people in the first place.
It can become overpowering to contemplate all the skills needed to properly use rental housing to build and maintain an estate. You'll need help. The question is, where do you get it? You should be prepared to spend as much time building a management team as you do acquiring properties. Packard Motor Car Company used to have a slogan: 'ASK THE MAN WHO OWNS ONE'. Landlords are a good place to start looking for people who are reliable and qualified to help you. Here's what you'll need for starters: Maintenance people who can do everything that you CAN'T do. Rent-Up people who can place ads, screen those who apply to eliminate poor credit risks and tenants who are unstable, let property deteriorate and who don't keep their promises under the Rental Contract or who are trouble-makers. If possible, try to find people who do related jobs. For example, rent-up people, screeners, collection people and eviction people could be the same people.
Let's assume you've selected the right house in the right location that can be rented at fair market rents; financed with loan payments less than net market rents. The next task is to clamp down on expenses. The key to controlling expenses in rental property is to rent to long-term residents who will be responsible for taking care of their homes. That means that they'll willingly perform minor maintenance and pay rent on a timely basis in exchange for the right to live in a decent house for as many years as they choose to. Tenants dislike moving as much as you do. If treated fairly, they'll continue to pay rent to you for many years.
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.
For creative financing people, OPM is the cornerstone of estate building and pyramiding of wealth. It's a magic concept; using other people's money to amplify our investment returns through leverage. Why can't we use the same concept in management? We can! First of all, we've got to divide our management job into various components which we'll call profit centers. Once we take a closer look at these, the opportunities for increased cash flows and profits will become more discernable.
When there are more houses for rent than there are qualified tenants, the tenant can command a premium for his tenancy. As a practical matter, this is often the case anytime that mortgage credit is plentiful and interest rates are low. This situation provides good tenants the opportunity to stop renting and to start buying their own homes with low down payments and mortgage payments that are as low, or lower, than prevailing rents.
A truly significant trends has been the merging of two households into a single rental. In some areas owners are making minor modifications to their houses to enable two rent payers to occupy a single family house. Let's take a three bedroom, 2 bath house which rents for $400 per month. It might be suitable for 2 childless couples who'd share kitchen accomodations and living/family room areas for a rental of $250 each. Ergo, their rent expense goes down while the owner's income goes up by $100. Naturally, this carries some risks, but profits are high. If you consider that the same house might require $375 in operating expenses and payments, what was formerly a $25 per month cash flow has increased to $125 or 500% PER MONTH!
For a high bracket investor, buying expensive houses as investments is a perfectly rational approach, but there's a fly in the ointment. First of all, our well heeled friend probably isn't aware of these possibilities. And he doesn't like the idea of managing real estate. But he hates taxes. That's where you come in.
There's a cycle in the landlord business that makes my life easier than for many of those who own rental income property. First of all, unlike my tax year, my tenant year doesn't start in January, it starts on the first day of February. In Florida, February brings a flood of additional people into my market. Regular winter visitors ('snowbirds') soak up rental housing along with students entering colleges. The extra demand triggers a 'landlord's market' that justifies higher prices for rents, and reduces tenants' bargaining power. As a result, each year at about this time of the year, my new rents start flowing in to begin my new year.
Which race-horse owner makes the most money? The one with a stable full of mediocre horses contentedly munching hay by the bale while losing races? Or the owner with just one horse that wins over and over again? If your objective is to generate income rather than to have the bragging rights to ownership of a lot of unprofitable rental properties (and wide experience in the martial arts), doesn't it make sense to focus on fewer, better properties than more, worse properties?