3 Things That You Should Avoid When Buying A Rental Property

3 Things That You Should Avoid When Buying A Rental Property





If this is your first time reading I’m Dave. I know buying rental properties can be a scary process when you are first starting out. When I got my first rental property, I didn’t have anyone to tell me the do’s and dont’s of investing. I now have 3 rental properties that you can read about  here, here and here. Over time I have bumped my head a few times, each time learning valuable lessons. From the experience I have gained, I want to share with you 3 things that you should avoid when buying a rental property.

3 things to avoid when buying a rental property

  1. Avoid rental properties in bad neighborhoods

    What is the neighborhood like?

    This is important because the people in the area are generally going to be the type of tenant you can expect. If you go to a neighborhood and you see heavy drug activity, vacant homes, gun violence, boarded windows, and the general consensus that the residents don’t take pride in their envirionment, then the majority of your tenants may be similar.

    This isn’t always the case obviously, as you can find a good tenant for any neighborhood if you know how to find a good tenant, but the chances are much lower. Don’t get me wrong, because of the cheap prices that often tempt new investors, you can make some large returns, but there may be more issues that cause this to be less passive and may be better suited for seasoned investors. Do not get these war zones confused with low-income areas. Investing in low-income areas can yield some high returns and low investment with less hassle. 
    3 Things That You Should Avoid When Buying A Rental Property

  2. Avoid rental properties with Structural Issues

    To me, structural problems are the “head-gasket” of rental properties. If I see structural issues, I make a speedy Gonzales style B-line toward the door. I’ve just heard too many horror stories from investors having to call in and pay structural engineers and you can probably guess its a very expensive process. The problem with homes with structural issues is that once these issues occur, they are usually documented and attached to the homes “permanent record”.

    Therefore this will need to be disclosed when you sell. Even if you shell out the cash needed to properly repair, in most states it will still need to be disclosed. From my experience, homes with these type of reputations generally sale at a fraction of its ARV. Some things to look for to determine structural damage are cracks that appear to be. Another sign to look for is when doors in the house don’t properly close. When houses have foundation issues it’s not uncommon for the alignment of the door and frame to become warped.

  3. Avoid investment properties with severe termite damage.

    While I won’t completely write off a deal with termite damage, it’s important to evaluate both the extent of damage and if there is a current infestation. Sometimes you can catch it early, but even then you should reflect this discovery in your offer.

    Termites can be a hassle to get rid of, and if not properly eradicated, they can literally compromise the structure of your entire house. A great way to check for termite damage is to take a screwdriver and moderately stab around the baseboards and if at any point you put a hole in it, there is probably termites.

    Termites eat the inside of wood so it may appear ok until you do the screwdriver test. Another place you should do this is around window sills. Always call a professional if you suspect termites and let them give you their synopsis. Most termite companies will do a free estimate, so call a few. Make sure you mix it up and call a few corporate places and some mom and pop exterminators. These companies are sometimes just looking for a quick sale so having a few different opinions can give you a general consensus.

There are literally tons of things to consider when purchasing a house for a rental property, so always do your due diligence and be aware. Hopefully knowing these 3 things that you should avoid when buying a rental property will save you some money and headache in the long run. Avoiding these simple mistakes will set you on the best path to start building your passive income.

 

What are some things you avoid when looking at rental properties? Let me know in the comments sections below.



investing in low-income neighborhoods

7 Tips For Investing In Low-Income Neighborhoods

Investing in low-income neighborhoods, has quite a few benefits, however, it should be noted that investing in these areas require a specific set of skills and tolerance.

Some benefits of investing in low-income areas are

  • Higher ROI
  • Lower investment
  • Easier to pay off mortgages
  • Easier to expand your rental business

Although there are countless benefits to investing in low-income areas, without the right knowledge, you can end up in a bad position.

Low-income doesn’t necessarily mean that the neighborhoods are not

Here are some tips that can help you as a low-income real estate investor!

Know the difference between a low-income neighborhood and a war zone.investing in low-income neighborhhods

You would be surprised how many informed people lump both of these into the same category.

War zones are areas with heavy drug trafficking, drug addicts, and gun violence. You don’t want to have to deal with calls from tenants that need you to come replace a window that was shot out during a neighborhood feud.

Don’t get me wrong you can make money in war zone areas, as well but it can sometimes come with more headache.

Low-income areas are just that. A lot of the residents, fall into the category of low-income. Just like any class, there are both good and bad people, the areas are generally safe.

Some advice I give investors is to drive through the neighborhood at night. Ask yourself…

  • What’s the vibe like?
  • Do you feel the need to lock your doors?
  • Would you walk down the street at night?
  • Do you hear gun shots?

This is the best way to tell what kind of area you are dealing with.



Buy properties in up and coming areas

It’s common for areas to change over time, neighborhoods can incline and decline, try to buy rental properties in areas that are showing signs of growth. Newly built grocery stores, and shopping centers are good signs of growth.

When you buy into up and coming neighborhoods, the value of your homes can rise considerably.

On the other hand, try to avoid areas that appear to be on the decline. If there is a steady increase in the amount of abandoned homes and businesses,  the area might be deteriorating which will cause your property to lose value, and eventually you to lose money.

Look for the diamond in the rough.

Low-income families are the same as everyone else. They want a home that’s visually appealing, and structurally sound.

Investing in low-income real estate does not mean buying outdated shacks, and becoming a slum lord.

Try to buy houses that are either visually appealing, or are distressed but are sold at a hefty discount. I prefer to buy distressed homes at discount prices because I hate going over someone else’s work. When I buy a distressed property, I have a clean slate to work with,  which enables me to have a beautifully updated house, for under market cost.

You can often find a better deal buying a distressed property, but make sure you know how to calculate renovation cost.

Find good tenants

*HINT! This is the most important part of ensuring success when investing in low-income neighborhoods.

You need to know how to find good tenants. As I mentioned earlier there are both good and bad people in every class. Dealing with low-income housing is no different. You need to pick a tenant with a proven track record of consistency.

Good tenants pay rent on time, maintain the property, and build your income.

Bad tenants give you headaches and cost you money. You only have one chance to pick so get it right the first time.

Avoid prospective tenants that:

  • Have an unverifiable rental history
  • Have been employed less than 2 years
  • Have credit scores under 600
  • Have ANY evictions
  • Have long criminal records

In other words, SCREEN, SCREEN, and then SCREEN the heck out anyone you may want to consider as a prospective tenant to live in your rental property. For a detailed guide on how to find a good tenant click here.

Rent your house section 8

What is section 8?
Section 8 is a government funded program, that covers either a portion or the full amount of rent, and in some cases, utilities, for low-income citizens that apply for the program.

I like section 8, as it’s evolved since its early days. My payment is wired to account monthly every month without delay.

There is a lot of contradicting information as to whether section 8 is good route for your investment. I rented my townhouse to a section 8 tenant and have had 0 problems. I attribute this to knowing how to find a good tenant. But my section 8 tenant is actually the easiest tenant to deal with.

Contrary to popular belief, section 8 people can be a pleasure. The program has a no nonsense policy for drugs and general nonsense. And because the section 8 program can be difficult to get in, most people that are on the program don’t want to lose their free or heavily discounted housing, so they tend generally try to maintain it.

Maintain your properties!

Investing in low-income neighborhoods doesn’t mean be a slumlord, so the same landlord commandments apply. Keep your properties maintained, If a tenant calls with a leak or anything that requires attention, take care of it immediately.

Not only will this prevent the problem from escalating, it will keep your tenants happy. A happy tenant is one that stays, and as an investor, you always want to aim for longevity.

The longer your tenant stays, the less you have to deal with turnovers and vacancies.

Hire a property manager

If handling the day to day operations of owning a low-income rental property, don’t seem don’t seem like your cup of tea, outsource it! Find a property manager that specializes in these type of area.

This will be helpful to you if you are not comfortable in these types of areas, it helps to have someone on call to take care of any problems that should arise.

Investing in low-income neighborhoods is a good way to build up passive rental income, and a great starting point for first-time investors, because of the low cost. As always, its very important that you do your due diligence before buying a rental property in ANY area.




Do you invest in low-income neighborhoods? What are some tips that help you maintain profitability?

Do you have horror stories from investing in low-income areas?

Let me know in the comments section below

Why your First Investment Property Should Be A Duplex

Why your First Investment Property Should Be A Duplex

When I accidentally started investing in rental properties, I was 26 years old. I’ve owned my own business since I was 23, and as a business owner, as you progress it’s natural to start considering Investment ideas. When you work for yourself you don’t get the luxury of a pension or retirement plan, at the end of the day you will only have what you were able to save up.

Even though I eventually stumbled onto long term real estate investing, had I know what I know today, I would have done things differently. Right after high school, if I had invested in a duplex, I could have easily been retired by now.

What is a duplex?what is a duplex

A duplex is a home comprised of two separate living quarters. In general, they have separate kitchens, bathrooms, and no common living areas with the other unit. Think of them as tiny apartment complexes with only two units. In most cases, each unit has separate utility meters so that each side only pays for what the amount of utilities they use.  This type of property is ideal for investors because you can earn twice the rent with one property.




Duplexes are great investments for young, first-time investors for a lot of reasons. Some of the pros are being that you can pay off your first property by renting out one of the units, and the other benefit is that you can potentially live rent free, to save money by owning a multi-family home. As long as you make sure that you purchase at a price in which one unit’s rent will cover the mortgage, and you know how to find a good tenant, your biggest living expense, shelter, is covered.

Duplexes are better for young investors from a living standpoint because. The units are usually smaller and can make a good home before you start a family. Once you start getting married and having kids, you will likely want to get a bigger house, with more privacy.

It’s important for young investors, to remember that even though your tenant is your neighbor, you shouldn’t build a friendship with them. If you find this difficult or awkward, i suggest at the very least, acting as if you are just a tenant as well. One of the top landlord commandments is not renting to or making friends with tenants. If tenants are your friends, in times when they may encounter financial issues, they will play the friend card” and things can get awkward quickly.

You guys know I’m an advocate of paying off houses as soon as possible. And because your mortgage will be covered, your ability to save should be drastically increAsed. I recommend setting aside what you would normally pay for rent, until you have enough to pay off the property. Once your pay off your mortgage, your other units rent goes straight to your pocket.

Sometimes, I find that duplexes can be over priced. Everyone has their own methods but for me to be even consider purchasing a duplex, it would have to be cheaper than I could find, two single family homes in the same area. For example, if I know 2 bedroom rentals average around $60k a piece, I wouldn’t want to spend over $110K for a duplex In that same area. This way it’s like getting a discount on 2 rental properties at the same time, while generating a higher ROI.

Eventually, you will want to move. The good thing about having a duplex, is that you can move out, rent your old unit out and start earning two rent payments at once. Now when you buy your next home, you have the luxury of being 2 rentals In the game.

Even though your expenses will be covered, I recommend to continue working  full time, to cover unforeseen repairs, and speed up paying off your investment.

In addition to duplexes, which are two unit structures, you can also find other multi-unit properties as well. Triplexes are 3 unit buildings, and quadplexes are buildings with 4 units. Anything over 5 units is officially considered an apartment complex, and different tax laws apply.

While most duplexes are side by side units, some will have an upstairs/downstairs layout. One thing that is important to me when finding a potential duplex, is making sure that the homes have separate meters for utilities. There have been times when I’ve come across duplexes with combined utilities, and it sounds like a hassle to try to decide which tenants used, how much energy every month. In cases where only the water is combined, the landlord usually covers the water bill. For me personally, I prefer my tenants to take care of all of their own expenses.

A single duplex is probably not going to provide the income, you need to retire just yet, however by investing young, and continuing to grow your rental portfolio, once you obtain and pay off enough rental properties, you will be generating enough passive income to live comfortably.

What was your first rental property? Was your first rental property a duplex?

Let me know in the comments section below.



airbnb investment

How I made $11,604 As An Airbnb Host In 5 Months

This is part 2 of my Airbnb investment experience, start by reading part 1 of my Airbnb experience series.

 

5 months ago I launched the Airbnb investment experience. It was completely last minute random decision, I made during the ending phase of renovations for house number 3. I stumbled upon the Airbnb investment model last year traveling back home to Detroit to visit family. I decided to join the sharing economy, and turn my rental property into an Airbnb vacation rental as an experiment to see if I could make more money then I would as a tradition rental. I wanted to know…

  • Do Airbnb host make money?
  • What kind of occupancy rates would I get?
  • Can you make more money as an Airbnb host, than a traditional landlord?
  • How much do Airbnb host make?
  • How hard is it to be an Airbnb host?

 

My Airbnb occupancy rate as an Airbnb host

The biggest deterrent about becoming an Airbnb host was a bad occupancy rate. The thought of letting a rental sit on the market not earning a dime concerned me, but thinking about investing in decor and furnishing on top of that, down right scared the crap out of me. Luckily, these fears weren’t necessary.

I want to be completely transparent with this occupancy rate, so its important to note, I also listed my property with Airbnb competitors such as Vrbo and Flipkey. This is something I recommend doing, to ensure the best occupancy rates.

Over the course of the 5 months following my initial launch, I found that on average my home was booked approximately 22 night per month. I’ve had a slow month here and there my slowest month was in August I only booked 15 night(Ouch!) but there have been months I have booked 29+ nights, so it tends to vary per month.

I would say approximately a 75% occupancy rate, I find the majority of my bookings are reserved in the current month, which initially freaked me out a litte, popular months do fill up further in advance, my home is in Clearwater, FL so, our winter season, attracts alot of snow birds, and people who just want to escape the harsh northern winters. As you can see in my airbnb calendar below, I was able to book 28 nights for December. I find people book longer stays in the winter months. As you can see I also had a significant amount of days coming from vrbo as well.

airbnb host occupancy

airbnb host occupancy




How much did I make as an Airbnb host?

I have a few answers here as an Airbnb host exclusively I grossed $7404, this was Airbnb bookings only.

airbnb pay out

From Vrbo and Flipkey I earned a combined $4200 gross. So all together in 5 months I grossed $11,604…Woohoo! Let’s break this down.

Lets talk about the expenses, obviously to have a vacation rental, you will have to have the utilities cut on and pay bills. Being the frugal guy I am I want to mention that while renovating this house I had all the lighting converted to LED, for one I like the look of LED Lights, and it saves a lot of money on electric bills. I do this to all my rental properties now, because this is a benefit to my tenants, but its even more beneficial for my vacation rentals to keep the electric bills low.

airbnb nest thermostat

Also I think its important to note that I live in Florida, so the AC is almost always on. My Electric bill has never been more than $130. Having a Nest thermostat is very helpful with this, so I can make sure the air is off when guest check out, and turned so the house is boiling when guest arrive.

 

The water Bill never really changes. This is a 1 bathroom home, so the water bill averages $80 a month

Cable, while its not a necessity for your Airbnb rental, I know this is a must when I travel, and everybody needs wifi, so bright house cable charges me $130 a month, this covers cable, wifi internet, and home phone service!

These numbers fluctuate a little bit depending on the amount of bookings, but only by a minor amount. That being said, my bills average around $350ish a month, so in 5 months generated approximately $1,750 in bills.




As an Airbnb host you must also consider house keeping cost. My wife and I currently do the house keeping, our Airbnb  cleaning fee is $60, which is what we pay ourselves for cleaning. Yes we pay ourselves, I do this for a few reasons, one because this is separate work, and is time-consuming(turnovers take 2-3 hours) and eventually I plan to outsource the cleaning aspect to make Airbnb hosting closer to passive income, and I want to already be in the habit of separating my cleaning fee, instead of pocketing it and calling it income. In 5 months we hosted 37 guest, which amounted to $2,220 in cleaning fees.

Now that we have the numbers lets do the math $11,604 – $1,750 in bills – $2,220 = $7634 net profit. Score!

Breaking this down even further if we divide this by the 5 months, we made an average of $1526.80 per month off this rental property. This home would normally rent for $800 per month in this area. This is almost double 🙂

How hard is it to be an Airbnb host?

I guess the answer to this question is debatable. The best answer I can give is it depends on the guest. The majority of people who book my home are absolutely the most considerate group of people I have ever met. But there’s a small percentage of guest that are less favorable than others. I’ve had guest need me to come over to show them how to work the television, or help them “get the cable working”. I’ve had guest request appliances.

airbnb after math

The aftermath of guest that came in town for a wedding

I’ve had guest leave huge messes, although that is a rare occasion. I mention these things because I think its important to keep them in mind.  Having a good deposit amount will provide a decent safety net should you guest, get drunk and accidently punch a hole in your wall.

To be honest, most guest don’t want to ruin your house they just want to have a little fun, to the right is the extent of the mess, I normally have to deal with. I usually come into empty champagne bottles, and beer bottles, its not really a big deal to clean.

Occasionally, a guest stain the carpet, but I find resolve gets out most stains pretty fast!

Here are few tips to help make Airbnb hosting a little easier.

 

 

Other things to consider as an Airbnb host.

A few other observations I have made in my time as an Airbnb host are my initial investment in furnishing the property. I spent $2,000 total on decor and furnishing. I remember cringing spending this money when I first started out. The extra $700+ I averaged per month covered this cost in under 3 months.

Most of the Airbnb  guest fit into 1 of 3 categories.

  1. Family Vacationer – These people are coming in large groups, usually with children. They are in town to do family oriented activities. They usually leave your house in good condition but the leave some minor messes
  2. Business Travelers – These are mt favorite travelers, they come to town for business related matters. They spend the majority of the day, away from the home and return tired and just want to relax. Because they spend so much time away, the house is very usually very clean when they checkout.
  3. BFF Vacationers – These are the best friends who plan trips together, sometimes they come into town for an event or just to explore the city. Either way they generally leave the biggest mess. I often come to find large amounts empty liquor bottles, and unwashed dishes.

I spent $2,000 total on decor and furnishing. I remember cringing spending this money when I first started out. The extra $700+ I averaged per month covered this cost in under 3 months.

Whats Next?

I plan to eventually expand my Airbnb business. I’m hoping to buy more properties with the purpose of renting them out on Airbnb. I also am highly considering remodeling house #1 into an Airbnb rental, but I want to see how this first house works out before I go to crazy with the expansion.

-Will the market get over saturated?

So far the Airbnb investment experience has been equally pleasant and profitable.

All in all so far I LOVE being an Airbnb host. Because I generally earn close to double the amount of income, I will be able to pay house #3 off earlier than I originally anticipated. I am considering purchasing additional properties to list with Airbnb, even though its by no means passive income, it’s proving to be extremely profitable side hustle. Are you considering becoming an Airbnb host? Click here to earn an EXTRA $50 for hosting your first guest. Do you already a seasoned Airbnb host? How do you feel about Airbnb? Let me know in the comments below?

 

Investing in real estate young afford everything

Investing In Real Estate Young

If I could go back in time, to my senior year of high school, with the financial knowledge I have now….I would have retired years ago. It hurts my head to think how uninformed, and uneducated the school system leaves our youth after earning your diploma. All those years chasing grades, learning formulas, and a plethora of other things, yet no talk of rental properties, building passive income, or even the financial basics. Unfortunately, this scenario is all too common. I was in my mid-20s by the time I accidentally started building passive income.

 

The average person graduates high school and college. After college they have incurred student loan debt so they get an entry level job, they rent while dating, get married then search for the dream house. The couple applies for mortgages, they purchase the dream house at the top of their budget. And the cycle begins. This is the point when you stroll up to the starting line of the rat race.

 

Your living arrangements are your biggest expense, for this reason, I recommend beginning savings for your first house right out of high school. Once you establish stable employment or hone your hustling skills, rather than renting, the best way to start investing in real estate, is to find a local duplex or a cheap single family home. In order to find a good deal, you may have to sacrifice, and consider living in a low-income area. Low income doesn’t necessarily mean dangerous, but do your research. There are benefits to each strategy.

 

The benefit to buying a cheap home is that you can pay it off fast. In my area, I can find a 2 bedroom home in a low income, but safe area around 50k. If you concentrate your income on paying this off, you can own this house in under 3 years. By paying off your primary residence, you have eliminated what is generally everyone else’s biggest expense. You now only have to cover your property taxes and insurance. This means now it’s easy for you to save, what would be rent/payments for your next investment. Imagine how fast you could save up for rental if you didn’t have to pay rent.

 

The benefits of buying a duplex as first investment slightly differ in this strategy. The idea here is to find a well-priced duplex. My criteria is that the duplex cost less than if I was buying 2 separate houses. Using the example above, if the average 2 bedroom was 60k, I would be looking at duplexes with a comparable amount of bedrooms per unit for 110k or under. Once purchased, find a good tenant to rent out one side. Make sure the rent you charge is enough to cover the mortgage as well as your bills. At this point, you have your own place, and your living rent free. Continue to save money as if you did have rent and apply this to the mortgage. If you continue this in a few years, you’re going to have the duplex paid off free and clear. Now when you receive your rent payments, they are mostly profit. You can now save up for a down payment on your next place, then replace your old side of the duplex with a new tenant. The income from having 2 new renters will be profit and you will own real estate.

 

By investing in real estate young, by the time you’ve paid off the property In either strategy, you’ve already aggressively taken a large step towards passive income and getting a clear view of the finish line that is the rat race. Once you move out and have either completely paid off and rented, you are now able to buy more rentals, or at the very least you have an asset generating enough monthly passive income to cover your new mortgage payment. Without having to worry about rent\mortgage payments you can begin a fast paced savings plan, that will allow you to grow your portfolio and subsequently, your rental income . The younger you are when you star investing in real estate, the sooner you can start building up your rental portfolio.



the landlord commandments

The 15 Landlord Commandments

For people like me, that accidentally started building passive income. Learning the landlord game has definitely been an interesting journey. As with any career path, when your in it, you get to see a whole different side of things. I believe one of the keys to success is the ability to adapt, so as Ive continued to grow my rental portfolio there are some tips that I have learned that can help to ensure your success with rental properties, and the keep them profitable and passive as possile

  1. Thous shalt Always Screen Tenants. The first line of defense for any landlord against major headaches, and utter destruction. Screen your tenant. Take a look at a persons track record with an online background check. Being able to find a good tenant is the foundation of a strong rental business.
  2. Thou Shalt NOT Rent To People You  Don’t Know. Your friends, your cousins, your moms friends, your brother, ex girlfriends little brother who’s “cleaning up his life now”, these are the people you want to avoid as tenants. When things go left, they will ruin your investment plan.
  3. Thou Shalt Always Do A Video Walkthrough Before Lease. Self explainatory right, which damages or stains were done before then tenant moved in, become merely hersay, when both parties not video evidence is available. I always do a video walk through with the tenant present. This way when they move out, they know if theres any holes in the wall, we both they weren’t there before hand.
  4. Thou Shalt Set A Tone For The Relationship. Always be prompt, professional, and reliable with your tenants. Set a standard for the way you run your rental business. Have policies and procedures in place, and follow them. Let tenants know up front what is expected.
  5. Thou Shalt NOT Discuss Personal Matters With Tenant. This is a big part of professionalism. Some tenants can naturally be friendly, and inviting. Maintain a professional relationship, when tenants begin to think of you as a friend, it can lead to late rent payments, and request to waive late fees, and a plethora of other things, that can undermine the foundation of your rental income
  6. Thou Shalt Be Clear Whats Expected. On time rent payments, how much are late fees, these are things you  need to express . If cutting grass, and raking leaves, or snow removal are the tenants responsibility, make sure this is clear in the beginning. I make sure a tenant knows whats available by including a tenant responsibility sheet.
  7. Thou Shalt Collect Electric Payments. Come on its 2016, I really hope your not driving to pick up a check from a tenants. Always collect rent via online payment service such as Paypal, or get a deposit only bank card from your bank, this lets tenants deposit your rent payment at any local bank of your choosing. Then all you need to do is check your balance from your app. Work smarter not harder!
  8. Thou Shalt Answer Your Tenants Calls. Believe it or not I know a few landlords who actually have a callous attitude towards this. A landlord should be accessible, or atleast have a 24 hour property management company in place. The tenant may be calling you to tell you a pipe burst in the wall, you need to be able to address problems fast, the faster you handle it the faster its in the past.
  9. Thou Shalt Make Repairs Fast. If the fridge goes out or the disposal break go fix it. Remember your tenants are paying you for a fully function living space, when things break fix them fast to keep the space functional. Don’t give your tenants a reason to get upset with you.
  10. Thou Shalt Fix Things Right The First Time. This is one I learned the hard way, in the beginning, I tried to nickel and dime things, cheap $10 fixes, I learned fast that this just creates an everlasting headache. If I’m fixing the same problem for $10 10 times, I probably could have just had it done right in the first place. Im all about keeping it a passive as possible. If you are not handy, get yourself a GOOD handy man that you can call for repairs.
  11. Thou Shalt Set Aside Money For Repairs. When its time to replace the water heater, or a leak from the upstairs shower caused the ceiling to sag. This emergency fund will keep you from hurting your profitability. If you fail to plan, you plan to fail, always set aside ATLEAST $75 per month per rental. I find by saving a designated amount, and setting aside, the emotion is removed from the money. When a tenant calls with an issue, instead of thinking, “more money out the window” you think “thats fine we have money set aside for that”
  12. Thou Shalt Have A Firm Late Fee Policy, and do not defer. Make your tenant sign a copy of your late fee policy before moving in. Let them know what date rent is expected, and how much per day it will cost after that. If you let this slide tenants do not have an incentive to be on time. I need my tenants to make me a priority, the business can only run efficiently with promptness. If something breaks, I fix it fast, I expect my money with the same speed. Now if a tenant tells me they switched jobs and now get paid on a different day, I would be willing to work something out, but never be willing to accept consistent late payments.
  13. Thou Shalt Always Have Eviction Paper Work Ready To Go. Have all late notice and eviction papers ready to go. I keep a folder with these by my desk. If a tenant doest pay, the late notice is sent, which usually rectifies the issue, but if not, Im ready to follow up with the rest of the eviction paper work
  14. Thou Shalt Raise Rents Yearly. This is something I wasn’t doing. You will need to check in you area for local laws regarding raising rent but its a good idea to raise rents yearly. This is one of the reasons I enjoy investing being a landlord, they keep up with inflation. Always check what other rentals are going for in the area. As a general rule I raise my rents by $50 per lease renewal. This is about half of whats allowed in my area!
  15. Thou Shalt Recognize A Good Tenant. If you have a good tenant, know what you have. Be a good landlord, and you will keep good tenants around for many years. These people are the heart of the business, show them respect, and respect their privacy. If you have a good long term tenant that pays well and treats the property good, you will always stay profitable
how to find a good tenant

Investing is real estate in the form of rental properties can be extremely lucrative, and an excellent asset that generates income. When you talk to people about rental properties the response normally falls into one of two groups. They either love it, and are swimming around in large pools filled with coins like Scrooge McDuck, whenever they have spare time, or they hate it and have tales terrible drawn out evictions, and thousands of dollars in damages. For some reason, this is the life associated with being a landlord, which is true to an extent, but can usually be prevented if you can find a good tenant. Here are a few tips to put the odds of building wealth with real estate in your favor. If you’ve ever had to find a tenant for the first time, you might ask the following questions:

  • What’s the best way to find a good tenant?
  • How do I screen a tenant?
  • What are the characteristics of a good tenant?

When you are a landlord, you need to rent to good people.  Screening tenants for your rental property will be the key to your success. – No Nonsense Landlord

The Number 1 rule to find a good tenant

Do NOT rent to any family, friend, or anyone you have any type of relationship. This is should go without saying, and is ranked very high on the 15 Landlord commandments, if you want to find a good tenant, and goes without saying but you wouldn’t believe how many people do this. No matter how nice this person is it wont generally work well. Your tenant landlord relationship needs to be professional. This means do not make friends with your tenants. One of my tenants used to always invite me out for drinks, but I always made sure to politely and respectfully decline.

Tenant Screening.

Screen your tenants. No really really screen your tenants. Seems like common sense for anyone hoping to find a good tenant, but remember those angry investors, this is the step that was either skipped or botched, that cause them to feel this way.  The first step to find a good tenant is the pre screen. This is done when you first advertise your property. Make sure you clean before taking pictures, because clean rentals help to attract clean tenants. Post your ad, with a detailed description of the property.

Next, you will want to add the things that will be required, I always choose the following, no felony convictions within the last 5 years, no sexual crimes arrest, must have verifiable rental history of at least 3 years, and must earn 3 times the rent, and no evictions ever. Those questions for potential tenants, are my first defense to help weed out the rift raft. I find that it filters out the majority of dead beat tenants. Last I include my application fee, this is generally $50, and is used to cover the background check, this is also put in the ad, for two reasons, so they know that I will be verifying the above questions, and because no one wants to waste $50 if they know they won’t pass. As I get potential responses, I call them back give them the address, and tell them do a drive by to see if they like the area. If they are interested I meet with them, and show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee.

Now its time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as Next you will want to add the things that will be required, I always choose the following, no felony convictions within the last 5 years, no sexual crimes arrest, must have verifiable rental history of atleast 3 years, and must earn 3 times the rent, and no evictions ever. Those questions for potential tenants, are my first defense to help weed out the rift raft. I find that it filters out the majority of dead beat tenants.

Last I include my application fee, this is generally $50, and is used to cover the background check, this is also put in the ad, for two reasons, so they know that I will be verifying the above questions, and because no one wants to waste $50 if they know they won’t pass. As I get potential responses, I call them back, give them the address, and tell them to do a drive by to see if they like the area. If they are interested I meet with them to show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee. Now it’s time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as

As I get potential responses, I call them back give them the address, and tell them do a drive by to see if they like the area. If they are interested I meet with them, and show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee. Now it’s time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as Next you will want to add the things that will be required, I always choose the following, no felony convictions within the last 5 years, no sexual crimes arrest, must have verifiable rental history of at least 3 years, and must earn 3 times the rent, and no evictions ever. Those questions for potential tenants, are my first defense to help weed out the rift raft. I find that it filters out the majority of dead beat tenants. Last I include my application fee, this is generally $50, and is used to cover the background check, this is also put in the ad, for two reasons, so they know that I will be verifying the above questions, and because no one wants to waste $50 if they know they won’t pass. As I get potential responses, I call them back, give them the address, and tell them to do a drive by to see if they like the area. If they are interested I meet with them to show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee. Now it’s time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as rentprep, that can do a full background and credit check for a reasonable price. These checks are quite comprehensive. Within 24 hours, any lies are exposed, as I have access to their former addresses, criminal history, eviction history, bankruptcy filings, credit score, and employment information. I then cross reference this with the application for discrepencies. My personal preferences are:

  • Credit Score must be atleast 600. I feel this score means you are fairly responsible, I may sometimes go as low as 570 if everything else is in order.
  • Criminal history must be extremely mild. I don’t allow any recent felonies within the last 7 years, no drug crimes(have you seen how the DEA kicks in drug dealers doors, looks very expensive), no sexual offenders, and pretty much anything that would indicate the tenants lifestyle could end them back behind bars, because jailed tenants can’t make rent. However if the prospective tenant got into a got arrested for public intoxication during Mardi Gras 5 years ago, I would not disqualify the tenant. Things happen, but this is a judgement call.
  • No evictions ever! I don’t care if it was 20 years ago. An eviction is one of the worst, and expensive things a landlord can go through. Evictions mean the tenant would not leave and had to be escorted out by law.
  • I make sure that they really work where they claim. Tenants will sometimes get creative here and give family members numbers, and instruct them to pretend to be employing them. I call jobs and speak with the supervisor, I verify employment and length of employment, this should match what was on the application. I require them to be on the job for at least 2 years.
  • I verify previous landlords, tenants also sometimes try to use family members for this, so use discretion. When the former landlords pick up, I confirm who I’m speaking with then ask them to verify the address of the the tenant, usually landlords will know this address right away and is a good indicator. Its always a good practice to speak to the landlord before the current. Sometimes the current landlord will be anxious to get rid of a bad tenant, and give a false praise. Once confirmed, I ask how the tenant was and how the home was treated. Landlords will tell you if they were trouble makers, or if they were late on rent.

If everything checks out, I can end my search to find a good tenant, and call the prospective renter and let them know that they passed the check and give them a move in date, and request one months rent plus a security deposit equal to one months rent. By pre filtering, and then screening and verifying potential tenants in this manner, I end up with end up with a responsible person who has the makings of a good tenant. I find that tenants with clean backgrounds, and pass these verifications are not flukes, they actually care about their reputations, thus are less likely to tarnish it. Both my tenants from house #1 and my tenants in the townhouse investment property that have been screened this way have rented my homes for 3 or more years at a time, and are extremely low maintenance. By thoroughly researching to find a good tenant from the beginning, I have less hassle and can truly consider this income stream passive income.

 

Are you a rookie landlord or a seasoned veteran landlord? Any tips I might have missed here? Let me know in the comments below!

start building passive income

How I Accidentally Started Building Passive Income.

House #1

I moved to Florida back in 2010 on a whim, I had a little money saved up, and I wanted to make sure my family had a gauranteed place to live. We were staying with my finance’s cousin until we could get on our feet. I spent my days looking for deals on property. After a few weeks I came across a private seller with an 3 bedroom home. The owner needed quick money, and only wanted 21K.  He was renting the property to tenants who were about to move. The tenants were very messy, and had about 5 pets.  The home had roaches and part of the floor coming up in the kitchen and all the carpet smelled like urine. I paid cash for the home and suddenly I owned property, this was house #1.  After purchase my fiancé and I ripped up the carpet and put some cheap carpet in it, we replaced the kitchen floor with some peel and stick tiles, and painted the walls. I wasn’t thinking about building passive income, but rather how much it was going to cost me to fix up.

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I think at the time I spent around $2000 on making the home livable. The house did what it needed to, it provided gauranteed housing for my family and I, the exterior was ugly and it was located in what could be described as an industrial area, and not very attractive. I loved the fact that I had a home, that I didn’t have to pay a mortgage on, all I had to worry about was the taxes which were low. We lived here happily for 2 years.

Fortunately the ambition in me always pushes me to want to upgrade things. I knew on the market I could sell the home for around 35K, and the type of house I wanted to upgrade to was around 65K. I began searching for houses again for about a month before I came across a gem in Clearwater, FL, in a super convient location, close to the Tampa bridge and the major highway in the area. It was a nice looking home with a for sale sign that read 69K with contact info. I called while I was sitting in the homes driveway, and spoke to Phil, who flipped homes for a living. Phil explained he bought this home in a lot of 10 houses from the bank, and that he was looking to sell immediately. I arranged to check out the inside, and was viewing the house the next day. It was a little outdated but I loved it. The location was PERFECT. I had about 30K saved up and I knew I could get close to 35K for my current house, so I immediately listed my home for sale and told Phil I wanted to make an offer of 57K. I figgured listing my primary home cheap it would sell fast, the same day that it was listed I got a call from a gentleman, who appeared to be interested in buying my house, what luck. The buyer told me he wanted to come take a look at my house immediately, and he did the following day. After his walk through he made a verbal offer of full price, luck was on my side.

Now before you rag on me for accepting a verbal offer, I want to just say in my defense, at this point I was new to this, no one ever thought me anything about real estate. But back to the story, the guy who was buying my home arranged to meet me the following Monday to sign the contract, I set up an appointment with a title company and was excited that I was a bout to move into my dream home. Unfortunately, my luck doesn’t usually work out as well as it appears, when Monday rolled around I did not hear from my buyer, I gave him a ring and was sent to the voice mail. WTF! He was just talking to me all every day. I called over the next few days probably somewhere near 30 times, this guy was obviously avoiding me. I hate unreliable people. Saddened, I decided to call Phil and tell him that I wasn’t going to able to get my dream house. Phil asked why, I explained to him what I had been through. Phil then suggested getting a loan, “my credit sucks” I said, but Phil had an answer for me, “what about a hard money loan?”. A hard money loan as I learned, is private loan through and doesn’t involve banks. Phil had a hard money lender named James that he introduced me to. Phil told me as long as I had 20% down  he would approve me and didn’t care about the credit. I just had to make interest only payments and I had 3 years to make a balloon payment. I could come up with the rest in 3 years, this sounded like a good plan. Now I wasn’t relying on selling my old house and I was able to move, but what was I going to do with two houses. The answer almost came like clock work, I could rent it out to cover the monthly payments while I saved up for the balloon. I didn’t realize it then but I was laying the pavement to the road to retirement. I listed my home on craigslist for rent for $650 and found a prospective tenant immediately. I made sure to take the right steps to find a good tenant.  I was happy I was now generating $650 per month without doing anything. I was building passive income. The payments rolled in like clock work and I was able to cover my payments which were $475 a month and still saving $175 toward the balloon without any work. This random chain of events was crucial and a staple in the beginning of my career as a real estate investor, this is how I accidentally started building passive income. My home was now an income generating asset, and no longer a liability.

This is around the time I had just finished up reading Rich Dad, Poor Dad, by Robert T. Kiyosaki which is an excellent read, frankly the man is a genius. If you are interested in building passive income, I highly recommend reading it if you are looking to get into real estate investing. The book itself isn’t going to teach you any real estate methods, however it changed the way I thought about home ownership vs owning properties that allowed me to begin building passive income.