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Investment Property Part I: How Not To Become A Slumlord
By: Cameron Brown
Welcome to the first part of a two part series about getting into the investment
property business.
After riding the ups and downs of the stock market roller coaster for a while,
an increasing number of investors are looking into property investment as a more
stable alternative. With hot markets in many parts of the United States, the
time may be ripe for you to get into this potentially lucrative trade. I would
suggest, however, that you keep reading before you jump on the first property
you find. You just might find something in this article that will keep you from
breaking the bank and your back.
The hope of any investor is to build long-term wealth; this is a fairly
straightforward principle and probably the reason you’re reading this article.
There are however, some rules to play by in the property investment game if you
don’t want to end up taking a shotgun with you every time rent needs to be
collected. I’m talking about how to avoid becoming a ‘slumlord’.
In order to best relate the rules of being a successful landlord, let me share a
story experienced by some extended family members. It’s a great example of what
NOT to do if you want to get the most out of your investment property. After the
story we’ll see what rules and lessons we can learn. Names have been changed to
protect the identity of the innocent.
Ben bought a beater single-family investment property in a very bad area and he
his two sons, Josh and Nathan, all got busy. They put in hardwood floors-don't
want to have to replace carpet every time you have turn over, right? And then
they thought they'd use really good paint-don't want have to repaint every time,
right? And then they decided to splurge on good cabinetry and bathroom
fixtures-a happy renter is a good renter, right? And to top it off, they put in
nice towels on nice racks that said, "We are Family." Renters would appreciate
that, right?
Right.
The first family to move in removed the bedroom and cupboard doors for firewood,
tore out the nice bathroom fixtures and sold them at the swap meet, and fired
small caliber rounds through the new hardwood floors. Ben discovered this when
he received a call that the roof was leaking and he should, "Get your *** down
here and fix it!" He patiently tried to explain that roofs do that when you pull
shingles for kindling. Other wonderful visits ensued, prompted by similar calls.
It only took eight months to get them out of the house; turns out that tenant
rights as outlined by the county enumerate more rights than the rest of us enjoy
collectively. As the family moved out he noticed that mom and the two older boys
all sported matching shirts stitched with "We are Family." The rest carried
various pieces of the house.
Ben, Josh, and Nathan began to rebuild the house, finding all sorts of
interesting changes to its structure. Nothing really serious other than a
supporting beam was chain-sawed out (apparently more firewood), tile pried up in
one bathroom-no clear reason why, gang signs scratched into all the glass and
mirrors that weren't broken and other little surprises.
While helping restring some crawl space electrical wire-later found strung in
the closet for hangers-Josh found a rusted out .32 caliber handgun. Somehow the
tenants had managed to pry bricks out of the chimney, which Ben needed to
replace in order to meet code. Apparently someone had driven an M1A1 Abrams up
the driveway; there was no other way to explain the huge cracks in a driveway
that had remained perfect for 20 years.
What can we learn from this horrific, yet unfortunately true story?
Rule #1
Location, Location, Location. Ok, so this might seem a little cliché, but it’s a
fact that the location of your investment property will determine the kinds of
tenants you will attract, and how much rent you can fairly charge. Remember, at
some point in time in the future it may become necessary for you and your family
to live there; what kind of neighborhood do you want to be in?
Rule #2
Don’t go overboard when you’re fixing up an investment property. You ought to
expect reasonable wear and tear. Keep in mind that ‘reasonable wear and tear’
means something entirely different to a person whose renting than it does to an
owner. And for goodness sake forget the, “We are Family” hand towels!
Rule #3
Know how to make basic repairs. Luckily for Ben and sons they had quite a bit of
experience in various construction trades. Otherwise they may have lost even
more money than they did through hiring out help. Knowing how to fix electrical
wiring, repair drains, and replace windows will save you quite a bit of money
down the road.
Rule #4
Screen your tenants as if they were moving in to live with you. This may be the
most important step to avoid becoming a slumlord. Ask for and check references.
Call previous landlords and ask questions like, “Did they pay rent on time? How
was the condition of the house/apartment when they left? Did they ever disturb
neighbors with loud music or yelling matches? How often would you have to make
special trips for untimely repairs?” Being as informed as possible about who you
rent to will make a huge difference in the profitability of your investment
property.
Rule #5
Know your rights as a landlord. Be familiar with the eviction process in order
to avoid long, drawn out disputes with tenants. Most states and counties provide
online information about tenant and landlord rights.
Don’t repeat the mistakes made by Ben and his sons. Granted, getting into the
investment property business takes hard work and you’ll have to put up with
things you normally wouldn’t put up with. At the same time there are steps you
can take to limit your liability while preventing yourself from becoming a
‘slumlord’.
In the next portion of this two-part article we will be discussing some of the
financial aspects you should be familiar with in order to find the best deal
possible on your first investment property.
About the Author:
Cameron Brown is an internet marketer specializing in investment property. For
more information on investment property, please visit http://www.sncloans.com/investment-property.html |
