Some days, investing in real estate can give you a real headache.
Maybe you’ve been doing this thing on your own. Maybe that one resident that is driving you crazy. Or maybe you’ve been up late, worried sick about that one property that just isn’t turning a profit, and you’re sick of seeing red month after month. Or perhaps those property renovations that were supposed to be finished in three weeks are still going after three months.
Worse still for the passive investor is the lack of communication you get from your property management company 1,500 miles away. It’s not due to the lack of connection— but the lack of actual effort by your management company to connect in the first place!
Whatever your situation, it’s true—investing in real estate sure can come with its fair share of headaches.
But never fear! We’re here to help you know what to do and to teach you how to avoid a real estate investment migraine in the first place.
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.
How to Handle 5 Major Buy and Hold Headaches
1. “My resident is terrible.”
Residents can come on a scale of terrible. There’s “playing music a little too loud” terrible and “sometimes late on rent” terrible, and there’s “actively vindictive and destroying my property” terrible. We’re sure you’ve read some horror stories that sound like they’re works of fiction because there’s no way a human being should be capable of some of the things we’ve heard.
Terrible residents are, in a word, difficult. But investing in real estate is a people business at the end of the day, and you have to know how to handle people. First things first, do what you can to avoid ending up with a bad resident in the first place. Are you properly vetting them before they sign the lease? Are you paying attention to the tell-tale signs of a future problem? Are you observant of the condition in which they keep their vehicle? Are you taking the time to drive past their current residence and to pay attention to the condition of the property? Are you allowing your future resident to arrive late to showings or closings or fail to follow-through on a plan, such as dropping off deposits or dropping off additional application information?
Remember, once we allow a low-level of performance by a resident, that becomes our new expectation.
Second, remember if you use a property management company, that you and your manager must follow the law if you don’t want to end up in a sticky lawsuit. Don’t touch a resident’s stuff, even if you’re evicting them. Don’t enter the property unannounced while it’s occupied. Don’t change the locks on them. Revenge will not be sweet, trust us.
The best thing you can do is try to quickly and calmly resolve the issue—no matter how big, small, or frustrating. If they’re breaking the terms of their lease, stick to the terms of that lease. Don’t be overly flexible or nice about it. Letting a resident take advantage of you sets a bad precedent and creates a new level of expectation on their part.
2. “My cash flow is negative.”
Negative cash flow puts a lot of investors into panic mode—but it doesn’t have to! Negative cash flow can happen for a variety of reasons. Maybe you had an emergency that caused a spike in property expenses, like a major repair. Maybe you’re dealing with a vacancy or a costly renovation. A few months of negative cash flow is generally okay. You should have the cushion to be able to absorb that and still manage.
If it’s a consistent situation, however, that’s another thing entirely. You should still avoid panicking, but rather sit back and look at your numbers. Where is your money going? What are all of your costs? Is your rent price competitive, or is there room to bump it up? How has your property performed over time? Is it a brand new property that immediately went negative, or is it a long-established property that is experiencing a bad month, quarter, or year?
The important thing to remember at this point is that investing in long-term buy and hold rentals is a long-play game. You are looking for a payoff over time, not a get-rich-quick payday. You must remember and be aware of your total return on an investment, not a short-term trend.
It may or may not be time to let that property go. You have to pay attention. If you’re seeing month after month of red, make a plan for the future.
3. “I can’t find good deals.”
After the recession, there were plenty of good deals out there for real estate investors to snatch up. It was a sea of foreclosure properties at rock bottom prices! As most of the nation’s real estate markets have recovered, it’s much, much harder to snag a deal like we used to. And it’s time for real estate investors to make their expectations a little more realistic.
You’re not going to see the same returns because you’re going to be paying a healthy market value for your properties again. The trick now is not in dirt cheap properties; it’s in strategy and excellence. Are you providing great service and great properties that keep your vacancies low and your profits high? Are you investing high growth areas and in markets that are stable and promising?
It’s these sorts of things, not cheap properties, that bring you success. If you’re finding that properties are too expensive in the markets you want to be in, go in with a partner or look to alternative ways to finance. But remember—good deals don’t make you a good investor. If you want to attract the best residents, attract them with the best properties. Offer residents the best service.
The bar is no longer so low that four walls and working water can get a place filled. If you really want to prosper and have your properties full of well-qualified and high paying residents, then start paying attention to all of the details. Your properties need to be beautiful and a step or two above anything else a resident can choose, and you will absolute find that good deals exist everywhere. It comes down to how you view the opportunity!
4. “Repairs are driving me insane.”
Little repairs on an investment property typically aren’t that big of a deal. Smoke and fire damage, flooding damage, even pet damage and hoarder damage can be time-intensive and incredibly costly. There’s not much you can do about the timeline of repairs—sometimes disasters just happen, and you have to deal with them.
The best advice we have is to deal with them the right way and to thoroughly investigate your contractors before moving forward. You want to go with someone who will be honest and fair with their prices and who will do the job quickly and efficiently. Do your due diligence here and really shop around and learn what you can about any and every company you work with.
5. “My manager isn’t doing their job.”
You property management team is your absolute best asset in this line of work. A bad property manager can absolutely break your chances of success! If your manager doesn’t seem to be handling things well—not properly reporting to you, not relating well to residents, not checking in, being disorganized, lazy, or just overall in conflict with what you want to see—maybe it’s time to find someone who will.
Life’s too short to settle for subpar property management.
Remember: no matter what real estate investment headaches come your way, there’s always something you can do to reduce them. It usually starts with due diligence.
What’s the biggest real estate headache you’ve dealt with lately?
Let’s chat in the comments below!