By Christopher M. Leporini, REALTOR® Magazine
As stocks tumble, good investments are hard to find. But if you that investing in real estate is the easy solution, don’t be fooled. In many areas, market conditions, combined with a flood of stock market refugees, are making the search for undervalued investments more difficult.
The good news is that you hold several advantages over the average Joe Investor: you are already well-versed in the real estate process, you view properties on a daily basis, and you have the experience to evaluate how a potential investment will appreciate over time.
The bad news is that becoming a landlord involves more than market savvy to be successful. You’ll also need to understand tenant screening, lease terms, and maintenance schedules. Streetwise Landlording and Property Management: Insider’s Advice on How to Own Real Estate and Manage It Profitably (Streetwise, 2003; $19.95) by Mark B. Weiss and Dan Baldwin offers nuts and bolts advice on managing investment properties. It can get you up to speed on the new skills sets that you will need to become a successful rental property owner. Although it focuses mainly on residential, it provides some information on land development and commercial investment as well.
Before you start investing, you need to seriously ask yourself whether it’s right for you. “Chapter 2: The Pros and Cons of Being a Landlord” candidly lays out property managements’ rewards, responsibilities, and frustrations. The authors advise considering whether or not you have the thick skin and the ability to emotionally detach yourself you’ll need when dealing with demanding tenants or evicting a resident. Also, you’ll need to consider the time commitment that managing property will entail. You have to be on call 24/7; which may conflict with your real estate schedule. It does boast a positive similarity to real estate sales—your potential for success is unlimited.
The book also provides advice on the day-to-day aspects of landlording. “Chapter 14: Working With Tenants” helps you learn to manage the frustrations of working with tenants. The authors describe five basic types of tenants and how to handle them.
- Watchdogs—call the property manager to fix a problem; they are the proverbial squeaky wheel. They may be aggravating, but these tenants will often alert you about problems early, when it’s still inexpensive to fix them.
- Complainers—find fault in everything. Unlike watchdogs, who can help you spot problems, they simply like to complain. Establish rules early on about what times they can call to avoid being called day and night about mostly imaginary problems.
- Helpless—need someone to take care of them. They will tell you with a straight face that they don’t know how to plunge a toilet. Again, setting the rules early on, and in writing, regarding you responsibilities will keep them from monopolizing your time.
- Slow Payers—don’t seem to feel that you really need their money urgently. Getting the rent from these tenants on time is a hassle, month in and month out, but they always pay eventually. Charge a late penalty to deter this behavior, otherwise, grit your teeth and accept it.
- Non Payers—don’t seem to feel you really need their money at all. Serve them notice according to the timetable prescribed by local law, and evict them.
Of course, not every tenant is going to be a pain. The books also provides advice on steps to take to keep good rapport with tenants. For example, the authors suggest using a maintenance request form to avoid misunderstandings on repairs and to provide a record of when work was requested and completed. Another goodwill gesture is to give tenants information that they can use, such as emergency phone numbers, the number of your maintenance person, and tips on apartment living.
Later chapters address vital information on insurance, taxation, and finance issues that you’ll need to as a rental property owner. You might already know some of this from your real estate dealings, however, a refresher course certainly couldn’t hurt. For instance, “Chapter 19: Insurance Matters” teaches you about how to shop for the best deal on insurance, as well as various insurance options such as liability insurance (a must), umbrella coverage, extended coverage, and loss of rent protection, among others. “Chapter 20: Worrying About Taxes” covers state and local taxes, including topics such as building registration fees, signage fees, building permits, and transfer taxes that you may have to pay in your area. “Chapter 21: Legal Concerns” gives you a grounding in the numerous legal issues that investing in real estate properties entails. Among other subjects, it explains tenant responsibilities, entry rights, and eviction.
Leveraging your real estate knowledge can give you an edge in even the most-picked-over property market. And basic framework of knowledge provided by Streetwise Landlording and Property Management should keep you from regretting your move into real estate investing.