In Episode 30 of An Investors Journey, we go over #1 Problem Most Landlords Face And How To Solve It!
We across so many investors that face the same issue when buying rentals. This issue is the reason we have been able to pick up so many deals. Before we get to the issue let me cover the misconceptions people have about why they invest rental properties, to begin with.
Hands-off- nothing in real estate is "hands-off". I'm sorry to burst your bubble. Houses need to be watched and managed regularly and you should always know where your investment sits in the current market cycle.
Property Manager- while we completely agree you should have a property manager managing all of your properties this DOES NOT mean they actually manage the property. Their job is actually to manage the tenant. It's your responsibility to manage the property.
Bought it Cheap- cheap doesn't mean a good deal. Cheap houses usually cash flow very well but get very little to no appreciation. This can be a big issue if you ever need to sell fast.
Appreciation- we know of so many people especially Austin investors that are negative cash flow simply because they're betting on the massive appreciation. Appreciation is not guaranteed!
Cash Flow- you also have the other end where they focus more on cash flow and have ZERO equity or potential for appreciation.
No Major Rehab- many think that you just buy a house and just rent it because tenants are not as picky especially in a hot market. This actually ties into the #1 Problem Most Landlords Face.
#1 Problem Most Landlords Face is DEFERRED MAINTENANCE
Deferred maintenance happens because of all the problems listed above. Most people buy a house and think it's going to be hands-off so they never visit the home to make sure everything is fine. They'll put a property manager in place and think, "it's good". Nope! The property manager needs to keep the tenant in place and that sometimes means patching things instead of doing the right repair. Enough of these little repairs a property manager needs to handle and it can literally wipe away all of your cash flow for the year.
Deferred maintenance can also affect your appreciation and cash flow. If you don't do any of the required work to your property because it will rent "just fine" now, then you will see your profits drop as the years go by and you can no longer increase your rents. Or it comes time to sell and you have to sell to an investor because it's no longer move-in ready.
Buy it right! I know you're thinking, "DUH!" but, it's not that simple when it's been months and you haven't found a great deal. You tend to become a motivated buyer and start thinking about how you can "just make a deal work". That state of mind is the beginning of your downfall.
Even if you don't want to update the property now, you MUST buy it with all the necessary updates needed accounted for.
What We Do
We usually by highly distressed homes so we can go ahead and update absolutely everything. This helps us virtually eliminate any tenant issues while at the same time capturing as much rent and price appreciation as possible.
We have recently bought a property where we don't need to do much to get it rented but of course, it will not sell in its current conditions for max ARV. So, because we know the area very well and see great appreciation over the next couple of years, we went ahead and did the bare minimum repairs to get it rented. BUT... we also bought it at the price we needed to do a FULL update. So the money is still there but we're just not touching it right now.
What To Watch Out For
Foundation issues- if not addressed accordingly you will have issues as time goes by like plumbing, doors not opening, windows not opening, and much more.
Scope out the sewer lines- especially if you have a big tree anywhere near where any of the sewer lines might be. You don't want to send a plumber over at 2 am because the bathrooms are ...