A lot of residential real estate has been sold as an alternative high yield investment. The possibility of receiving high yields lured owners into the rental business. Many of these investments were sold turn-key but owners find they have a long way to go to maximize the potential return. Unfortunately, many owners have never physically visited their investment. They are trying to make decisions from a spreadsheet and are managing expenses tightly. Rental owners also include accidental landlords (owners who could not sell their homes). The problems with these owners is that they really wish they did not still own this home. Every maintenance or repair issue reminds them that they really would prefer to sell than incur any more expenses.
When a property owner becomes a landlord, the gross income (lease) alone should not be considered as 100% income. Like any business enterprise, this income is produced by money being spent (expenses). I can’t think of any businesses that just produces income without any expenses. Obviously, the secret to a good business is for the expenses to be less than the income! When a property owner tries to maximize the potential return of their rentals by eliminating expenses, sooner or later it leads to a crippled business. These decisions often result from an owner being under-capitalized. It is a big mistake to be an under-capitalized owner.
Some states have legislated standards as to what a landlord must provide. Laws or not, these are just common sense practices. As a rental owner you are running a business. The old business adage, you have to spend money to make money, applies to rental property also.
Basic Standards To Realize Potential Return
Do you own a property that does not meet one of these standards? It likely is not producing its full potential return. Could addressing these expenses now improve your rental property income and business? Probably.
Does it work adequately for running appliances and today’s electronics? If tenants constantly are having problems with tripped breakers, it probably needs an upgrade from a licensed electrician.
Most tenants prefer working showers, hot water and functioning toilets. Spend to make your property more than adequate in its plumbing and fixtures.
Occasionally we have an owner expect tenants to live with a furnace that breaks down every other week. Tenants deserve heat and should not have the supply of it in the home constantly in question.
If the home is leased with air conditioning a tenant has the right to expect it to work and provide adequate cooling.
Weatherproof the Home
Fix the windows so they are operable and not mended with tape or wood. Fix the roof leaks and don’t expect your tenant to use a bucket when it rains.
Roach, rodent, and other pests should not be a part of the tenants environment. Sometimes a tenants lifestyle invites the problem. Those situations will be addressed or solved by your property manager. I have forced an eviction where lifestyle of the tenants caused a severe roach problem that had spread to an adjoining unit. This is an example where the potential return of the duplex was about to be severely impacted. Not addressing the lifestyle of the bad tenant will likely result in losing the revenue of a good tenant (and eventually the bad tenant also)! Maximizing potential returns also means solving problems for the sake of the community.
Structural Issues Do Not Go Away
They usually get worse and possibly create a risk or hazard. They must be repaired. Even if a tenant is inconvenienced.
If not provided by the community, then an owner needs to create a system for the tenant to be able to have their trash removed. Think of it as plumbing for debris.
Simple stuff that most owners already know. Knowing and being willing to act though are different. Being willing, and able, to act will allow you ultimately to reach your rental’s potential return. An owner trying to rent a property with some of these issues will likely experience a long vacancy. Vacancies are the most obvious issue that will affect your rental’s potential return. Why allow long-term returns to suffer when solutions are easily available by investing in your business known as a rental property?