One of the biggest fears for people getting started as rental property investors is whether the tenant will pay rent on time or sit in the house as long as they can until they are legally forced to move. Maybe you know someone with this horror story. Sure it happens, especially in COVID times, and in some cases these situations could not have been predicted or avoided. However, my belief is that in most cases they can be avoided. In multi-family, it is very likely that for each asset you will have bad debt and uncollectible rent (hopefully a small percentage). However, those impacts can be less on well managed properties. For a single-family home, on the other hand, one non-paying tenant can really hurt. After quite some time self-managing, I believe that I have enough personal experience to attest that it is possible to increase the reliability and timeliness of your rental payments by doing a few key things.
1️⃣ Screen well
Whether you are self-managing or using a property management service, screen well. This cannot be over emphasized. Screening is what allows you to learn about the potential resident before move in. Wouldn’t you rather learn of issues prior to move in and not after having signed the lease? I hope so, because once you get a trouble resident into your property, the costs can be great due to uncollectible rent, damage and legal costs. Screen like heck. Here are a few things you or your property manager should ensure to screen for:
– income requirements (I have done 3x monthly income)
-background check (look for criminal history that was not disclosed by applicant)
-credit history
– references (employment or previous landloards)
2️⃣ Set expectations early
Early on, set expectations for tenants on what is and what is not acceptable behavior. Make sure these terms are in the lease and review the lease with them. Now that you have done that, follow the terms of the lease. If you do not practice what is written, residents pick up on this and naturally will know whether they can lax on some of the requirements. For example, in my leases there are late fees after the fifth of the month. For that reason, many times they will pay by the fifth, but not beyond, in order to avoid the late fee. There have only been one or two months when they had to pay late fees, but I charged them. I knew that if I “waived” the fee, I have compromised my standards as well as set the precedent for the future, a precedent I cannot afford.
1) Set expectations from the first interaction
2) Put all expectations in the lease
3) Enforce the lease always
3️⃣ Show appreciation and care for residents
Whether through my multi-family business, Robinson Capital, or through my personal rentals, one of the most rewarding things about owning rental property is the fact that we are impacting people’s lives by offering safe living. From my days as a leasing agent, i was trained to show genuine concern for residents, listen to them and think about their welfare. Here are a few tips on what I have done:
1) Show compassion during hard times – when COVID first impacted the U.S. in March 2020, I made the decision to lower rent on each of the rentals by $100 for three months. Each of the tenants were very appreciative and did not miss rent a single month.
2) Recognize residents during the holidays – some landlords argue against doing this, but the purpose of my investing is to impact others, and to not recognize residents somehow during the holidays is to miss a critical impact opportunity. Each Christmas, I send a Christmas card and gift card to tenants (using the income from their rent) just to wish them a happy holidays and tell them thank you. I am confident that this speaks volumes.
Making a difference
The guidance above works for single-family homes or multi-family assets and can be implemented by self-managing landlords or apartment investors who are working with property managers. Yes, real estate investing is not a charity but a business, but it does not mean that you cannot impact those along the way. I would argue instead to operate like a business but build impact into your operations. Doing it for the right reasons is key and that is not something that can be taught. This involves ethics, morals and compassion. Secondly, taking care of residents using these suggestions above should positively impact renewals, occupancy and rent growth.
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– How To Use Your 401k To Invest In Real Estate
