Saving on investment property expenses
There are many ways a property investor can save on expenses when owning rental property. A major expense trimming can be had by simply searching for the best investment property mortgage rates. After all, finding excellent terms on any investment loan can save an investor many thousands each year. In addition, locating the optimum prime properties that can be purchased under current market valuation is another huge savings. However, buying a rental property and then knowing how to choose and handle the right tenants can realize the most cost savings of all.
Set your ground rules with your tenants
I always advocate for a written lease when renting out your units. Month to month rentals are fine – however, consider at least placing it in writing. A written document, even for a month to month rental, helps solidify your expectations. It also makes it more difficult for a tenant to negotiate with you down the road. In the lease, you’ll need to include exactly what you require for your rental: the monthly rent, the day payment is due each month, the penalties for late or bounced checks, and all the negative consequences (read: the eviction process) should the tenant break any of the rules.
Stick to the rules you set
Once you break your own rules for one tenant (as a nicety – giving them a break – just this once), you’ll end up getting into a bad, costly pattern with other tenants. This could prove disastrous to your business. Tenants talk. To one another. Never show weakness (that is, being a nice guy). Once you, do they will, by human nature, start taking advantage of your largesse. Always stick to your guns. If you have not received full rent from any given tenant by the fifteenth of the month, send them written notice immediately. Don’t wait a full month (or worse, longer) before getting tough. Impose late payment fees after the fifteenth of the month.
Evictions – the nuclear bomb of owning rental property
If you have not received full payment and late fees by the end of the month, you must start eviction proceedings against a bad tenant in order to protect yourself, and minimize the damage they are doing to you. Expect eviction proceedings to last up to two months, on average, depending on your local municipality’s court schedule. If you are unfamiliar with the eviction process, you’re certainly going to need the services of a local, experienced attorney you can trust to act expeditiously on your behalf to remove the delinquent tenant. It’s always a gut-wrenching, ugly experience. And obviously, quite costly as well.
Besides paying for the services of an attorney, there’s the issue of lost rent for the time period until you find a new tenant to replace the delinquent one…It’s not simply the time period that the bad tenant has not paid you. Until you get them out of your building, it’s going to be very difficult to even show the unit to prospective tenants. And many times, a bad tenant, just before they are finally evicted, will perform some form of “revenge” destruction inside your unit. A bad tenant can end up costing a property investor a tremendous amount of money.
Finding the “good” tenants
For this reason, it’s best to find only “good” tenants to avoid this scenario. Make sure you’ve properly vetted them – check their references well. Speak to their current and prior landlords, as well as their work references. Check their credit. Make sure they can afford your unit. To this end, their rent should only comprise no more than 33% of their current gross monthly income, as a general rule of thumb. If you follow these simple rules, you’ll be able to save a tremendous amount in unnecessary operating expenses. In this way you can turn each and every one of your rental buildings into a prime property.
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