The 2 Biggest Problems Buy & Hold Investors Face (& How to Solve Them!)
Maintenance and vacancy are the two biggest hits to an investor, and they are the two largest time requirements for a property manager. So if you could get maintenance under control by having a maintenance plan in place, you would be able to avoid a lot of hassle.
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When your property first goes into service, i.e. when you first clean it up and put a tenant there, amongst many other things, you would have put in new light bulbs. I’ll use the light bulb example here to explain how the maintenance plan helps.
Let’s say you’ve set up a light up front that’s got five light bulbs. Seven months or a year from now, when that first light bulb goes out, more than likely, the rest of those light bulbs will start going out in the next couple of months. So, you might just replace them all at one time. It’s a very low cost replacement, and it definitely ensures you’re not going back four other times in the next six months to change one light bulb at a time. The more trips you (or your handyman) have, the more cost it will entail. It is all about being efficient.
Setting Up a Yearly Maintenance Plan
Just having a written maintenance plan of what’s going to happen can help you save tons of money. You should set up a yearly maintenance plan. This serves two purposes. One, it keeps the property running smoothly through preventative maintenance and it gives you frequent access to the property to see how the tenants are caring for the property. I can’t stress enough how preventative maintenance makes a difference. It seems without fail that the preventive repair that could have been made ends up being a middle of the night phone call emergency.
An example of this is yearly maintenance of furnaces. We send our HVAC repairman out to service all of the units. The owners that don’t do this always seem to have a no heat call on a Saturday night at 9:00 p.m. And anyone who has rental properties knows that your HVAC guy has different rates for during business hours and off hours. The difference in cost could be many hundred dollars.
The Problem of Vacancy
The other major problem faced by the owners and property managers is vacancy. I work really hard to keep tenants and to prevent vacancy.
Vacancy is really expensive for a residential unit. If a unit goes vacant, you're going to more than likely lose a month of rent. You'll need to spend money to turn over the unit, which could generally equal a thousand bucks if you're painting. You might have to redo some flooring, and you'll be adjusting this and that. In the end, you'll end up with a thousand dollar bill, and then you'll have to pay commission to a real estate agent to find a new tenant.
Basically, your 3-4 months of rent out of pocket that you're giving up is hurting the cash flow of the rest of the investment properties or hurting your reserves or whatever it might be. On the other hand, if you could find a way to keep that tenant, you generally know when a lease is going to end. This will allow you to figure out what you need to do next.
If you aren’t interested in keeping the current tenant, you can start looking for new ones 60 days before the lease will end. If you want to keep the current tenants, which is much more profitable and hassle free, you can find ways to entice them. You can give them incentives or tell them you’ll update their carpet or replace their cabinets or give them $300 towards the utilities next year. Money talks.
Just spending $500-600 on improving a unit and keeping a tenant is a far more efficient way to operate than to let the tenants go. Tuning in to the tenants' needs might do the trick. If your tenant pays $900 and you know they find it difficult to pay that, you can drop the rent for $25 in order to retain them. This will cost you $300 in a year, but believe me, it's far less than what it costs to turn that unit over. Three hundred dollars to the tenant versus $1,800 or $3,000 to your contractor or real estate agents is a way better deal.
Do you face these problems often? What are your proposed solutions?
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