Tenants, Toilets, Termites, Taxes
The Ts (Tenants, Toilets, Termites, Taxes) of rental property symbolize difficulties with ownership of investment properties. All are important and additional difficulties exist. For instance, finding and owning a rental property in the right location, market, and for the right price can represent difficulties. But let’s focus on three of the Ts: Tenants, Toilets, and Taxes.
The right tenant in a rental is so important that it influences other factors. For our purposes right tenants are people who understand and respect property, tenants who maintain the property by keeping it clean, tenants who do not destroy the property. The right tenants also pay their rent on time and are stable individuals. They communicate major issues, such as broken pipes or a leak in the roof, but do not call their landlord or the landlord’s representative with constant nit-picky things.
By this description such a tenant does the landlord immeasurable service not just in paying rent but also in avoiding major repairs. If the property needs major repairs before tenants move in, the landlord ought to complete the repairs to a professional standard right away.
Ah yes, overflowing toilets also can happen any time of day. Aside from the mess they require immediate necessary repairs. Landlord’s or their representatives must address the issue at the time it occurs or shortly thereafter. Since most people have an aversion to getting calls at all times of the day, they also have an aversion to dealing with “toilets.”
Back to tenants, though.
Many potential tenants exist. The difficulty lies in finding great tenants because this requires effort. To find great tenants, landlords need a screening system and to evaluate the potential tenant, an evaluation which includes calling on references and checking credit and other financial information. Then the landlord must assess how well the tenants fit.
Taking these steps helps landlords avoid potential nightmares, such as damage to the property by the tenant and tenants who exploit rental laws, rules, and regulations. And it just may save them from having to evict a tenant.
As already alluded to earlier, landlords have responsibilities also. Among those is to provide habitable rentals that have been well-prepared for tenants. Another is to know local tenant laws, etc. They also must know the rental market where the property is. And finally, landlords should never rush finding the right tenant. Therefore, planning for and factoring in that the property might sit vacant is essential.
Next, property taxes can eat a sizable chunk of the proceeds from a rental property, so it is important to know property tax rate for your investment property. Some states have high property taxes, others low ones. Make sure you know how taxes affect your profits.
All physical assets require maintenance and repairs, whether they are homes or cars, for example. Paper assets rarely require this. Landlords need to understand this and plan for it. It is a good idea to have some cash reserves.
Also consider that investment property provides cash flow and appreciation in the best scenario. That said, never bank on appreciation when owning rental property. Instead, maximize cash flow through correct management of the property, including through its tax advantages.
Difficulties in rental properties arise more often when the landlord wants to ‘milk’ the property, skips steps, has a short-term mindset, and does not consider the many factors that affect investment properties.