Every time I attend a “How to Get Rich Quick In Real Estate” seminar, I’m told by some speaker In a dark blue suit that I should always rent my properties to “blue collar” tenants with middle class jobs who have unblemished credit ratings. There is one exception, they claim! It’s OK to rent to senior citizens with an adequate pension income in addition to their regular monthly social security checks.
I suppose that’s good advice, but I also suspect the speaker doesn’t depend very much on rental income to buy groceries like I do. Obviously, the questions I have, along with thousands of other small-time landlords are; what happens If I can’t find tenants in those two categories? What If my properties don’t attract blue-collar workers or senior citizens? The last seminar leader I tested those questions on tried to avoid me at first. When I kept on asking, he sort of turned the other way and his face got real red and twisted – like a man suffering from a chronic gas disorder.
Most Renters Pay their Rent
Contrary to the landlord-tenant “horror stories” we’ve all heard about, most tenants who agree to rent your property will also pay their rent. This fact of life eliminates about 95 percent of your collection worries. Trust me on this I can prove it! The big problems are caused by the remaining five percent who can literally destroy your Iife! It’s the old story abut the rotten apple in the barrel and unfortunately, “destroy your life” is not too strong a term for what can easily happen when innocent, but “dummy” landlords do battle with “ring-wise” deadbeats.
Many Landlords Help Tenants Go Wrong
Have you ever made the rounds to see the model homes when developers present their annual home tours? All the houses are “decked out” with expensive furnishings and yards are immaculately landscaped. If you’re like me and you start the tour looking at houses selling for $75,000 and end up viewing those that cost $350,000 – It warps your value system. Your taste is suddenly “light years” ahead of your financial capacity.
Most folks, who do these, tours like me, are rational thinking people. Their minds can adjust to their pocketbook without too much difficulty, but consider what would happen without this adjustment. The results would be similar to a child at the dinner table whose eyes are bigger than his stomach. Without some kind at help or restrictions, he’ll always take more food than he can possibly eat!
A Tenant Problem Is Your Problem
Landlords need to use this logic when they rent their properties: Never show $800 houses to renters who are not qualified to pay a nickel more than $400. Naturally they’ll want the house they can’t afford. You must always quality the tenants ability to pay rent first. That will dictate the property you show them. Remember the models! If you show an $800 unit to a $400 tenant, I’ll guarantee you’ll either lose him as a customer or he’ll attempt to stretch beyond his financial capacity by agreeing to rent your $800 house. It he succeeds, as many do – you’ll be the one who has a problem – and you’ll also be the one to blame!
Many lower income tenants need help with their finances. Some have great difficulty working out a balanced budget for them. Younger couples are especially overly optimistic about how much rent they can afford to pay. It’s up to you as a landlord-owner to determine how much gross income is needed to pay the rent you charge. I’ve found that most well are tenants would be willing to sign my rental contract for a suite at the Hyatt Regency. The problem is they can’t pay the rent. When that happens, I’ve got a problem too.
Never forget: rent money is like handcuffs between landlords and tenants. It’s the common bond! ” A tenant has a problem paying rent, the landlord has .the problem too!
When you begin to think of rental houses as a business venture rather than simply investing in real estate, it will open your mind to a whole new world of opportunity. The rules at business will help you immensely as an investor-owner of rental properties.