When you take a risk (and investing in real estate is intrinsically a risk), you want to try to mitigate your risks as much as possible. In order to mitigate your risks, you need to analyze the areas in which your business provides a “failure point” and be proactive in thinking about how you can minimize that risk.
Life is not perfect, and sometimes there are unavoidable issues that you simply can’t have knowledge about and are not able to control. But I’ve learned that being a boring landlord, where the majority of what you do is collect checks and maintain your property, is the ideal situation!
You certainly don’t want to be one of “those” landlords you hear about, who have all sorts of issues happen to them that cause them to curse the business and dissuade others from jumping into the game.
So what are some examples of minimizing risk? Well, just take a look at a few “ugly landlord” scenarios and what the “boring landlord” would do.
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What Would the “Boring Landlord” Do: 5 Scenarios
Landlord Scenario #1: A furnace goes out in the middle of winter
The boring landlord would get tune-ups on the furnaces every fall before winter hits. That landlord would take the advice of their trusted HVAC maintenance person, and when a furnace is getting to the point where it will go any day, proactively replace it.
Landlord Scenario #2: A tree falls on the roof of your property
The boring landlord would make sure that they are, of course, carrying insurance on the property. Secondly, the landlord could hire a tree maintenance company to check out the trees on the property and cut back any large branches that are close to the roof (or touching it).
The tree maintenance company can also check to see if the tree is healthy — a dying tree might be closer to falling down than a sturdy, live one.
Landlord Scenario #3: A prospective tenant sues for discrimination
The boring landlord would advertise their property without using discriminatory language (e.g. “perfect for families”). That landlord would write down their screening criteria in black and white and ensure that they hold all prospective applicants to the same criteria (you can have the applicant sign the statement and initial each criteria).
Landlord Scenario #4: A tenant trashes your property
The boring landlord would screen, screen, screen — and make sure that the applicant they are accepting in their unit is one worthy of the property. They only accept a tenant who will pay their bills, pay their rent, and take care of their rental unit.
A boring landlord is one who trusts, but verifies the information the tenant gives them. The boring landlord will call not only the current landlord, but also the prior landlord(s) to ask the question, “Would you rent to this person again?”
Landlord Scenario #5 – A tenant stops paying rent due to maintenance issues
The boring landlord will fix everything when it stops working. The boring landlord will make safety a #1 priority and ensure that smoke detectors are working and are present in all required areas. The landlord will ensure that carbon monoxide detectors work and are also located in all the required areas. The landlord (or their maintenance person) will walk through the property periodically and make sure they don’t notice anything that the tenant hasn’t mentioned.
A 5-minute fix can turn into a 5-hour problem if not done in a timely manner!
Can you eliminate risk entirely? NO!
You can’t predict if a brand new furnace, for example, has a small, defective part that causes it to stop working. You can’t predict if you get someone who tries to sue you anyway, no matter how solid you write your ads and perform your screening. You can’t predict if a drunk driver runs up on the grass and crashes into your property. Investing in real estate is just like any other investment: not without risk.
That being said, you still can take steps to minimize risk as best as possible.
What do you do to minimize risk? Are you a “boring landlord”?
Leave a comment below!