04 Mar 2014
3 Questions every new landlord should ask themselves
The first rule of real estate investing is to purchase at a discount. The deeper the discount and the fewer repairs you have to do, the more money you will make.
This is the fundamental concept of real estate investing because it keeps your options open. Because you have bought a property with built in equity, you have the option to flip the property for a quick profit or rent it and generate cash flow. It goes without saying that the less money you have in a property, the easier it is to rent it for positive cash flow.
If you are new to the landlord arena, there are a few questions you should ask yourself before jumping in. Using a property management company will alleviate most of these worries, but if you plan on being a hands-on landlord consider the following:
1. Can I evict a likeable tenant?
Most people immediately answer yes, but it may be harder than you think. If you are a landlord long enough you will run into a circumstance that is tough to swallow. Consider evicting an elderly woman with no family, or a single mother who has fallen on hard times, or even a family member or friend.
Being a landlord means you are running a business and businesses are around to make money.
While many investors will work with tenants in special circumstances, there should always be a line. Making sure your tenants know where that line is will help reduce the instances where you have to make a tough call.
2. How do I handle an emergency situation?
Being a landlord is similar to being a parent. When there is an emergency, it is your responsibility to make sure your tenants are taken care of. That means handling late night water leaks, or spending an unexpected $1,000 to fix an air conditioner that has gone out in the middle of a Texas July. Having a team in place and knowing who to call the first time is essential to being successful. Guessing is not an option if you want to stay profitable.
3. Do I have a good understanding of my legal responsibilities?
Being familiar with and understanding the rental law in your area is crucial. Working with a good real estate attorney is also essential.
One of the most important laws to be familiar with is your local eviction process.
Some areas can have a property vacated in a matter of weeks while others it may take months to complete the process. All the while your property is being occupied by an tenant who is either severely delinquent or worse, destroying your property.
You can be stuck with not only your financing obligation of the property but also the repair cost. The most effective way to avoid costly evictions is to have a thorough tenant screening process. Again make sure you know the appropriate legal requirements, it’s easy to get in trouble over discrimination and fair housing laws.
This article was published by Kurt Carlton, a full time real estate investor, former host of the CBS radio show, “Creating Cash Flow” and is an expert on real estate acquisition, finance and management. In addition to acquiring properties, Kurt is also a seasoned hard money lender, named the “Giant of Investor Lending” by HousingWire Magazine. You can connect with him on Twitter.
Photo by: Håkan Dahlström.