Some days, investing in real estate can give you a real headache!
Maybe you’ve been doing this whole real estate investing thing on your own. Maybe you have that one tenant who is absolutely 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 you’re tired of thinking about those property renovations that were supposed to be finished in three weeks that are still going after three months.
Whatever your situation, it’s true — investing in real estate sure can come with its fair share of headaches. Whether you are an active investor who finds their own deals and handles all of the details or a passive investor who chooses to be a little more hands-off, the issues with long-term buy and hold investors are always the same. Real estate investing comes with its own set of unique challenges and headaches, and we need to learn how to deal with those challenges as quickly, patiently, and even-handedly as possible!
We’re here today to help you know what to do — and to help teach you how to avoid a real estate investment migraine in the first place.
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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 & Hold Headaches
1. “My Tenant is Terrible!”
Tenants come on a scale of terrible, really. There’s “playing music a little too loud” terrible and “sometimes late on rent” terrible, and then there’s “actively vindictive and destroying the property” terrible. We’re sure you’ve read some horror stories that sound like they are works of fiction because there is no way a human being should be capable of some of the things we’ve heard about tenants.
Terrible tenants 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 tenant in the first place. Are you properly vetting them before they sign the lease?
There are countless articles on questions to answer and techniques to use in order to identify future problem tenants. You may not be able to dismiss a tenant offhand without a good reason and one you can document. However, you can have solid guidelines in place, and those guidelines can absolutely give you the reason to tell a tenant “no” when you realize they would only add to your nightmares.
Second, remember that you and your manager must follow the law if you don’t want to end up in a sticky lawsuit. Do not touch a tenant’s stuff, even if you’re evicting them. Do not enter the property unannounced while it’s occupied. Do not change the locks on them. Do not remove an AC condenser when they are a month behind rent. Do not turn the water off or cancel sewer and trash service to a property just because a tenant is terrible or taking advantage of you. 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 tenant take advantage of you sets a bad precedent.
Yet you have to be firm. We have always believed in being fair but firm. Stick to you lease terms and hold them accountable, but never lose your temper or let the situation get too far out of hand. It never ends well. Ask us how we know…
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 OK. You should have the cushion to be able to absorb that and still manage.
If it’s a consistent situation, however, in your business-as-usual, monthly rental situation, that’s another thing entirely. Don’t panic, but instead, 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?
It could be that it’s just time to let that property go. If you’re seeing month after month of red, don’t let it stay that way. Cut the property from your portfolio and move on to better opportunities.
The bottom line is to evaluate why your property is not producing a cash flow. When you have identified the problem, you almost always will find an answer.
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.
I have a habit of telling investors that you can find a good deal in any market and in any cycle. It takes perseverance, good connections, the right team, and a little luck (that is code for hard work!). Why is that a habit? Because I believe it whole-heartedly. If you are patient, willing to work hard, unwilling to give up, and surround yourself with the right team, you will be able to find good deals at any time.
4. “Repairs Are Driving Me Insane!”
Little repairs on an investment property typically aren’t that big of a deal. Smoke and fire damage, flood 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.
When you are investing in real estate, especially properties that require renovation, investors need to understand the cost of not renovating a property. For every $1 that an investor “saves” on the front end by deferring maintenance, they will spend between $2 and $4 on the back end. Often, that back end starts rather quickly and can be very defeating.
Do not drive yourself insane by setting yourself up for renovation failure. Do the work on the front end and avoid the maintenance headaches on the back.
5. “My Manager Isn’t Doing Their Job”
Your 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 tenants, 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.
Way too many investors settle for cheap property management. They buy cheap properties, expect management to be average at best, and then complain when the whole thing blows up! We set up our own expectations with what we accept on the front end. When you demand even a basic level of competency such as organization and demonstrable communcation, well, at least you start off by setting the bar at a somewhat higher level than what investors have come to accept.
Property management is the make or break with a buy and hold property, and we must expect more!
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.
Want to reduce the headaches that come with investing in real estate? Invest in turnkey real estate. A trusted turnkey investment company will partner with you and take care of all of the headache-inducing details, leaving you to focus on directing the big picture and enjoying the rewards of your investments.
What are YOUR most dreaded headaches when it comes to buy and hold properties?
Share your experiences with a comment below!