Need to consider in real estate investing...

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Need to consider in real estate investing...

Dan Wynn
Investor · Columbus, GA · Member since 2015 · 190 posts · 79 votes

Buying a suitable property or real estate project as an investment is an art. But the investor needs to equally pay attention to the management and maintenance of that property, contractors, budget, and tenants. In the case of real estate, where the management is poor, the returns may deplete. Any thoughts on this?

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y

I agree. If you don't maintain the property and keep it at market rates, it can dramatically reduce your returns. I know an investor locally that "saved money" by only doing major maintenance on his properties. He required tenants to handle smaller stuff. He also didn't clean or paint or do anything to improve his properties between tenants. He took the first person to hand him cash (no screening) and told them to clean the property or improve it as they saw fit. 

The problems are:

  1. He had a lot of bad tenants, lost rent, and heavy turnover;
  2. His properties looked like crap so they never rented at market rate and they only attracted more bad tenants;
  3. When he went to sell the properties, they were in bad shape and sold for tens of thousands below what they should have.

Maintaining the home well attracts good renters that stay longer and pay more. When it's time to sell the property, it will sell easier and for a higher price.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y

    I agree. If you don't maintain the property and keep it at market rates, it can dramatically reduce your returns. I know an investor locally that "saved money" by only doing major maintenance on his properties. He required tenants to handle smaller stuff. He also didn't clean or paint or do anything to improve his properties between tenants. He took the first person to hand him cash (no screening) and told them to clean the property or improve it as they saw fit. 

    The problems are:

    1. He had a lot of bad tenants, lost rent, and heavy turnover;
    2. His properties looked like crap so they never rented at market rate and they only attracted more bad tenants;
    3. When he went to sell the properties, they were in bad shape and sold for tens of thousands below what they should have.

    Maintaining the home well attracts good renters that stay longer and pay more. When it's time to sell the property, it will sell easier and for a higher price.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    1Reply
  • Dolly La Salle
    Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
    4y

    @Nathan Gesner Would you lower your rent by $100 from rent market value in order to keep a good tenant?

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Dolly La Salle:

    @Nathan Gesner Would you lower your rent by $100 from rent market value in order to keep a good tenant?

    That depends. Is market rent $2,500 a month or $1,000 a month?

    I don't ever reduce rent. There are occasions where I will delay an increase for one year, but only if it's an excellent renter (always pays early or on time, no communication issues, perfectly maintained home). Even then, I won't let anyone fall more than 10% below market rates. My goal is to keep them within 5% of market.

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  • Dolly La Salle
    Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
    4y

    @Nathan Gesner I recently purchased the property (my 1st investment) and I inherited the tenant. She has been known to be an excellent tenant. She is paying $1225, but her lease expires this month. The market rent is at $1600.
    I wanted to raise the rent to meet market value and also because I might have to replace the roof, but she was going to move out if it was more than $1500. After a while, I agreed to $1500 since she is a good tenant. I didn't want the hassle of a new bad tenant. Plus, $1225 to $1500 is a big impact for anyone. Like you stated, I will raise the rent every year with the standard rate in my state. I hope I made the right choice.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    It's not a terrible decision, but I would have let them go and put someone in at market rate. $100 a month is $1,200 a year or almost one month of rent. If your market grows another 8% this year, you'll be nearly 15% below market.
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  • Dolly La Salle
    Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
    4y

    @Nathan Gesner Very true. I will have to analyze my numbers again next year before I extend the contract. Taxes and insurance go up so I will definitely have to increase the rent. So, from what you stated, "My goal is to keep them within 5% of market.", the minimum that you would charge is $1520 ($1600-($1600*5%)?

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y

    That is correct. It's my rule, but the doesn't mean I never deviate from it. A few years ago I had a disabled lady in her 70's. She had neck drop and couldn't work, but Section 8 kept reducing the amount of rent they would pay and this lady was barely scraping by. I kept her portion of the rent the same. She ended up about 20% below market for a year. She knew I couldn't keep her there for ever and was starting to look for another place to live, but she ended up dying before that could happen.

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  • Dolly La Salle
    Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
    4y

    @Nathan Gesner Aw man, that's so sad. I am sure she appreciated you not raising her rent. It's a shame that Section 8 continued to reduce the amount of rent paid while rent prices increases. Hopefully, she is resting in peace. 

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  • Dolly La Salle
    Germany and Jacksonville, FL · Member since 2018 · 108 posts · 18 votes
    4y

    @Nathan Gesner Just want to say thank you for your vote. :)

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