How to Avoid Landlord Mistakes and the Dreaded Eviction Process

2

I must need a shrink.  This entire article was composed while I was asleep presumably getting a sound nights rest.  Where it came from I don’t know… other then the last article I wrote – Tenants: Customers or Scum? – and the subsequent comments which were great, have been weighing heavily on my mind.

In my business I witness many landlord disasters — every one of them ending up with a landlord evicting a tenant and losing precious cash flow.

I know for a fact that every landlord in this situation starts out very differently from how they end up.  They start out wanting to execute what I will call Plan A.

Plan A is pretty simple: buy a property at the right price and renovate it as needed.  Make sure the all-in costs are significantly less then current market value (just in case you can find financing), find the perfect tenant, and then sit back and collect the monthly cashflow.

Sounds like a plan doesn’t it?  And it is a fairly straight forward and simple plan at that —  so simple anyone should be able to execute it . . . right?

Well, if that is the case why are there so many landlords who are not enjoying the fruits of Plan A and instead find themselves trying to survive long enough to get through Plan B?

What is Plan B you might ask? 

Ultimately eviction and if the landlord is fortunate, their losses are covered by the security deposit or are reclaimed in small claims court.  Otherwise, these landlords have just paid for a very costly education and put themselves in the path of great risk.

Which would you rather be doing? Successfully executing Plan A or struggling through Plan B?

It’s a stupid question I know, but so many landlords have no idea how to successfully execute Plan A and even though that is what they want, they end up with Plan B.

Kinda sucks doesn’t it?

I have experienced the struggles of living through Plan B.  Not often, but enough to make me a expert on how to avoid it.  So, with that in mind here are a few of techniques I believe are vitally important for every landlord to implement to successfully execute their Plan A.

Download Your FREE Tenant Screening Guide!

Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.

Click Here For Your Free Tenant Screening Guide

Tips for Becoming a Successful Landlord

  1. Cash reserves.  Have them.  Without cash reserves you will not be able to properly maintain your properties only encouraging tenants to take the attitude that if you don’t care why should they.
  2. Buy correctly.  The lower the purchase price relative to the gross rent, the more room you will have to maneuver when “stuff” happens, such as when rents drop due to current economic conditions.
  3. Choosing the right tenant.  This is probably the biggest contributor to falling off of Plan A and ending up on Plan B.  Remember the person you let live in your property is going to be responsible for paying your mortgage.  Would you assign that job to just anyone?  Here are a few pointers regarding choosing tenants:
          
    1. You want to receive as many applications as possible.  This may mean that you have to lower the rent amount to get multiple applications.
          
    2. Don’t accept a tenant just because they are the only application.  (see 3.a. above).  Also, don’t accept a tenant who is overly anxious to move in or is ready to pay two months rent with cash.
          
    3. The application is there for a purpose.  Use it!  If it isn’t completed correctly, reject it!  If a tenant can’t complete a simple application what chance do they have of following your “house rules”?
          
    4. Tenant screening (credit checks and background checks) is vital.  And, while I realize the credit of many renters today may look like a cesspool, a credit report helps to validate SSNs, recent utility judgments (if they have utility judgments whose name are the utilities going to be in?), and the overall amount of their obligations.  The background checks speak for themselves.  Oh, and these checks should be conducted for anyone who is on the lease — which should anyone living in the property over 18!
           
    5. Employment checks are another critical item.  Don’t take the applicants word or their pay stubs.  Today, any document can be made to look like an original.  Verify, verify, verify.
           
    6.   Take your time and be thorough.  This is the one step that when completed correctly will have the biggest positive impact on your staying with Plan A.
  4. Use a strong lease.  I have mentioned this on many occasions.  Your lease is the start of the official relationship with your tenant.  If the lease is weak the relationship will be strained as the tenant attempts to push the envelope.
  5. Don’t let tenants push the envelope.  It doesn’t matter how strong your lease is; if you don’t enforce it, those non-enforced sections will be shot down in court.  Know your lease.  Train your tenants to know what is in the lease, and then hold them accountable to it. Don’t waiver!
  6. Inspect your properties often.  At least every 3 months – more often if you can spare the time.
  7. Don’t let your tenants get behind in their rent.  While I am an advocate of working with tenants when things may be tough for them, I always remind them, by taking them to rent court, that their rent is past due.  My approach to late rent is as follows: rent court on day 6 (Maryland rules), physical inspection by day 12 and once the judgment is obtained, the constant threat of eviction.  This process has worked more than it has failed and is one more way in which to train your tenants that you mean business.
  8. Train your tenants.  I mentioned this in the above referenced article.  It is critical that your tenants know what you expect of them once they move into your property.  Often times your expectations will be the first time they have ever encountered “house rules”.  Make sure every tenant understands these rules and enforce them.
  9. Be responsive to tenant issues.  While it would be easy to leave all tenant problems at the doorstep of every tenant, the fact of the matter is that every landlord has a responsibility to provide a safe dwelling for their tenants.  If you are unwilling or unable to hold up your end of the bargain, then you are probably no more then an slumlord, and if that is the case how can you expect your tenants to respect your property when you don’t?

There you have it… at least 9 solid techniques for keeping you on Plan A and moving towards success as a landlord.  I am sure there are others, but I can guarantee you that if you don’t bring at least these 9 into your business you will find yourself struggling through Plan B.  

I look forward to the same level of comments as in the most recent article, and best of luck!

Photo: Bart Everson

About Author

Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.

2 Comments

  1. Good stuff, as usual, Peter. Your point about training tenants is maybe one of the most valuable. Back in the day, when Dad had forced me into pro management of our clients’ units, we trained tenants I was the ‘bad cop’. My assistant, a very friendly, empathetic young lady, was the ‘good cop’.

    She did most of the training, building me up to be a scum of the earth, no conscience, ogre. 🙂 We then picked out the troublemaker in the building, if there was one, and made an example of him.

    Worked well for years. Newbies to management would do themselves a favor my taking the info in this post to heart. Those who shun the basics will pay the price every time.

  2. Great article Peter…………..

    Another great tip is when looking at the tenants credits reports to see all the debt obligations.

    It can actually be a great sign when they just filed and came out of a chapter 7.The debts are wiped clean and they have more income to cover the rent.

    A colleague that manages over a 100 residential units told me that if the tenants has built up a lot of debt their experience has shown a pattern of the tenant defaulting in the future and being a slow to no pay.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here

css.php