“Take it from me, bad tenants are bad investments. I sold my house at a loss after all these years, to what end?” – said an emotional landlord.
The above statement is one of the many variations we have heard landlords make. The joy of owning rental property, the dream of great ROI and the hope of handing over legacy to the next generation can all fade in a few years.
Being a landlord should not be a reason to have sleepless nights. However, as with everything that gives excellent results, seeking knowledge, being business-like, working with professionals and choosing the right partners (with aligned incentives) may seem slightly expensive but in the end, prevents 90% of bad stories.
Let’s help with some knowledge on the financial side of rental investments. This week, we’ll focus on the number one mistake – choosing the wrong managers.
Financial Mistakes Landlords Make: Property Management by Non-Professionals
This is very simple. A bank keeps your money safe. A wealth advisor gives financial advice. A doctor gives health advice. In all three examples, you can cease to be a client if you decide they are not providing excellent service.
1. If you want profit from your rental investments, run it like a business
Do not give full responsibility to a family member. Sign clear SLAs with professionals you can fire and fire them when they do not perform. Anyone you can’t fire shouldn’t work in a business with you. If you’d really need to help a family member, that’s a noble thing. Give them money from your profit.
2. A lawyer is not a property investment advisor or property manager.
Lawyers are there to help provide legal guidance and win court cases. While they can set great agreements, most of their work is reactive, after a tenant has defaulted. 90% of landlords who handover apartments to lawyers tell us the same bad stories – delayed rent, lack of records, property damage, etc. The reason? Your property is side income for them and incentives are not aligned. They make more money when you’re in trouble, and have no incentives to prevent them. Property management is not rent collection by letters and threats. Do we need lawyers? Yes, but only in extreme cases where legal proceedings are required. Even lawyers tell you not to go to court, anyway.
3. Agents are an important part of the real estate ecosystem but are not trained to give you the best ROI or keep your property in shape.
You put money in the bank, not with local street contribution collectors, why give your property to an unprofessional agent?. They can offer tenants but a professional organization should decide scientifically who a good tenant is, assure you of at least 95% rent collection and make sure your property is in good shape.
4. You cannot manage properties yourself.
First, you don’t know who a good tenant is. Because a myth says a family with 2 children from a particular tribe is perfect isn’t the reason to follow it. Is bad behavior from a tribe? If you run a business, do you select customers because they have family or because they can pay for services? We’ll talk about this next week. Secondly, your tenants should not have uncontrolled access to you. Many landlords get blackmailed emotionally and fall for both fake and real pleas. Sometimes, tenants are building their apartments with your rent. Professionals protect you from stories.
We said earlier that property management is not rent collection alone. Real estate is the only asset class with two ROI categories – rent and then, capital gains when you sell. Focusing on rent alone is one of the reasons landlords engage agents who perform poorly. The real gain though is dependent on your property being in good shape 20 years down the line.
Your rental asset is a financial asset, manage it like a business, not a hobby.
We know some landlords have had bad experiences with real estate professionals. The solution is to choose better next time, not default to non-professionals or self-management. At Landlord Heaven, we have built strong financial partnerships and created systems using technology to eliminate tenant default on rent and ensure your rental property is always in great shape. Landlords that partner with Landlord Heaven maximize their liquidity in their rental properties and above all, get the peace of mind that they deserve.