You have heard friends talk about it; you may know someone; maybe it was your experience.
Everyone has heard the infamous Real Estate horror story.
The one where that person bought a rental property and it was the worst decision of his life.If you are like me, you were at a barbecue, and you mentioned a desire to buy a rental property. Maybe the listener was silent. Maybe they rolled their eyes. Maybe they even tried to talk you out of it, saying that a friend of theirs had a rental and it ruined her life.
Most of the time I heard these stories, I listened…I listened for the lesson.
In fact, if you try to do the same thing, you may realize that the fearful messenger did not even mention why.
- Why did real estate not work out?
- Why did the rental ruin this person’s life?
- What would have happened if they had stuck with it?
- Better yet, Did this person have a lease with the tenants?
- Did this person fully vet the tenant’s qualifications?
- How did he or she set expectations for tenants’ inhabitation of the property? .
- Do you see what I did here? I am looking for the lesson Fortunately, when I heard these horror stories I have listened and asked those next level questions, and here is what I learned.
After learning that many of these inexperienced stories are told with exaggerations for dramatic effect, I estimated that roughly 95% of the fearful pleas to avoid real estate revolved around poor tenant screening.- Tenant trashed my apartment
- Tenant did not pay rent on time
- Tenant skipped town
- Tenant was a drug dealer
The list goes on. What is the lesson here?
Screen, and screen well. Screen like heck.
How do you screen people who will be living in your house for the next twelve months? For each of my properties, I require the following:- Monthly Income: 3x rent- Credit Check- Background Check: no unexplainable criminal history- References: Employers, past landlords, etc.
Let me be clear. I do not expect perfect scores or tenants.
I am looking for an all around review of character. In fact, I have allowed tenants with evictions and criminal history to rent with me.Why? For each of these tenants, they explained their past proactively, their references gave them raving reviews, and there was no indication that in the recent past, they could not keep a job or pay rent.One reminder: in screening tenants, ensure to abide by Fair Housing laws, which does not discriminate based upon protected class.
The above discoveries limit the risk of the you experiencing your own real este horror story that keeps you out the game forever.
In summary, if you want to be different from the majority, you have to stop listening to the majority. Talk and learn from those who have done it. Then you will see why real estate is the best asset class in the universe.
